By Sushant Bhansali
Pandemic-related disruption now seems like a distant memory. As more and more sectors like education, entertainment and travel open up, the economy has certainly turned around with great agility, and the markets have acknowledged it quite resoundingly. The intensity of the rally has definitely caught everyone by surprise. The last 10,000 points of the Sensex rally has come in a mere 167 trading sessions; prior to this, the index has taken an average 900+ sessions for a 10,000 points move.
However, be not mistaken, this bull market is no flash in the pan and the momentum is just about getting started. All things remaining constant, markets should scale new, unprecedented and unimaginable highs in the coming years.
India’s growth story has been full of ups and downs like a roller coaster. The early 2000s saw some massive fundamental changes in the Infrastructure sector with the commencement of the Golden Quadrilateral and the NS-EW corridor. This ushered in an era of growth, which saw the GDP compound at a CAGR of ~15% for the next decade in nominal terms. The growth momentum continued in the early 2010s.
However, post 2015, the momentum has been lost a little bit largely due to two main factors: a) the economy entered a phase of structural reforms, which have now set the foundation for strong sustainable growth. GST, Demonetisation are just some of the examples of the same, b) growth has also been marred by exogenous events like Covid -19.
India is currently ranked 5th in the world in terms of Nominal GDP at the current U.S. Dollar Exchange Rates and it is a matter of time before we rise to the 4th position, surpassing Germany. In the last two decades, we have come a long way. So many fundamental reforms have happened and we have managed to achieve global leadership in many sectors.
We believe that the last few years have been a transitional phase, the one where a lot of structural changes have happened and foundation has been laid for a structural and more consistent long-term growth.
For the first time in decades, the key cylinders of economic growth: (1) Capex Cycle, (2) Interest Rates, (3) Real Estate sector, and (4) Government reforms, are all positively aligned. This gives us reason to believe that the Indian economy can grow much faster than it did historically. A mid-teens compounding of the nominal GDP is very easily achievable ushering in the US$10tn economy era in the 2030s.
Government spending will continue to remain robust, thereby helping the growth agenda. The fact that tax collections have been well above target helps a lot. A lot of concerns have been raised on inflation, which is just transitory. Stable crude, improving global weather patterns and continued softness in crude should pull back flaring inflation. In India’s case a bumper crop also enables softening of food inflation, an added advantage.
In order to achieve the US$10tn milestone over the next decade, India’s GDP would have to grow 10-14%, at the current exchange rates.
The journey to the $10tn mark is likely to result in a marked improvement in the business environment and likely growth opportunities available to companies looking to capitalise on it. We believe that there will be a shift from unorganised to organised leading to a K-shaped growth where leaders prosper at the expense of the followers, while the pool simultaneously grows larger. Dominant Mid and Small cap companies too, are likely to benefit much more than their large cap peers. So focus on the “Good and Clean” and invest in quality.
(Sushant Bhansali – CEO, Ambit Asset Management. Views expressed are the author’s own.)