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THREE REASONS FOR BETTING ON INDIA:
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1. Integration of a Country
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When you integrate a company with railways, roads, net connectivity - you kill the regional player. This leads to massive wealth creation for the companies which take the market share. This has happened before:
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(a)
America
- 1882 the railways came
- 1900 the telegraph
- 1920 the road network started
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All the well-known brands were started in these 50 years – Wrigley’s, Kellogg’s, Coca-Cola, Heinz, General Motors, Ford, etc. This was the first big bull market. Ketchup was made in each small town and village with their own recipe. Heinz was the most efficient, they either bankrupted or acquired the small manufacturer.
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(b)
Japan in the 45 years after World War II was home to brands like Toyota, Mitsubishi, Sony, and more
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(c)
Korea in the 40 years after the Korean War had top brands like Samsung, Hyundai, Posco and more.
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In India:
- The road network has doubled in 10 years
- Local broadband connectivity has increased 50 times in 10 years
- Local airline travel, in spite of Covid, is up 5 times in 10 years
- The number of bank accounts in 10 years has gone up 3 times
- GST has come into play and UPI has made payment simple - 12% of all payments are done without cash
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Tangible joining of the country. For e.g. Titan and the small local jeweller - Titan has grown 250 times in 20 years. The local jeweller does not have access to the latest designs, IIM management talent, the cost of capital is twice that of Titan, and reputation and standardization of quality. Still, Titan has a market share of just 7% even though it has grown 250 times.
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2. When you bring world-class, reasonably priced technology that allows smaller companies to expand faster at lower cost to a poor country…
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This results in exponential growth. Bajaj Finance and a small broking firm
can both afford the best software in the world Sales Force. This fundamentally changes the game and allows small companies to ramp up
their business using cheap, world-class technology. Technology without
economic integration would not have had such an impact.
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3. Attack on Black Money
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Black money was spent on buying real estate.
Tax to GDP is just 10%, which is one of the
lowest in the world. Development cannot
happen with such a low tax to GDP ratio. As
they try to push up this ratio, whether through
GST, or other means:
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(a)
They are cutting off the legs of the small unorganised sector, which deals in cash. It
impairs the growth of the rivals of the large corporations.
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(b)
RBI has reiterated many times that 95% of India's wealth is in physical assets - real
estate and gold. No other country in its history of the planet has a skew like this. India's
household wealth is about 10 tn dollars. 9.5 tn dollars is real estate and gold. Elon Musk has
twice the financial assets than that the whole country owns. This is unsustainable as no
individual can nowadays retire with most of his wealth in real estate and gold. Millions of
middle class families have realized this. Hence there is a shift to financialization of wealth
at roughly 1% per year.
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(c)
The growth in Financial assets is reflected by the 10-year bond yield. In 2004, it was 17%
and today it is almost 7%. When the cost of capital falls so dramatically it is the organized sector
that benefits - and the unorganized sector just cannot compete.
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Hence, India's structural situation is good - we have been through dramatic changes in the last 10
years but we have 20-30 more years of growth. As mentioned in last month's note, with the Indian
middle class growing rapidly, consumption is bound to go up.
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EQUITY MARKETS
The Ukraine War and other Geo-Political tensions, high crude prices and high inflation is likely to keep the markets volatile. Further the quantum of the rate hikes by the US Federal Reserve and the shrinking of their Balance Sheet would also contribute to the volatility.
Hence, invest in equity either through a Systematic Investment Plan or Systematic Transfer Plan or wait for market dips. Alternatively one can invest in Asset Allocator funds which would switch between Equity/debt and in some cases even gold.
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DEBT MARKETS
The RBI will at some stage take the following steps to normalize the situation - reduce the Liquidity in the markets, standardize the margin between the repo and Reverse repo interest rates - and also raise the interest rates. This is all negative for the debt market.
Use debt just to give stability and to park your funds. Cannot yet look at getting returns from your debt allocation.
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GOLD MARKETS
When debt and equity markets are not too favourable, the only asset class that has clear visibility at this moment is gold. Gold appears to be breaking out after over a year of consolidation. Further, Gold does act as a hedge against inflation and also a port of safety in uncertain times.
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INVESTMENT MISTAKES TO AVOID IN 2022
- Not following Asset Allocation
- Reacting to temporary under performance
- Not giving due respect to high valuations
- Not opting for debt as a capital preservation tool in spite of low returns
- Investing based on past returns
- Investing in IPOs without understanding the busines
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AKURDI |
WAKAD |
WANOWRIE |
MAGARPATTA |
B-20, Jai Ganesh Vision, Akurdi, Pune-411 035. |
No-1, Nisarg Deep Apartment, Kaspate Vasti Wakad, Pune-411 057. |
No. 26, Shraddha Regency, ’A’ Opp Kedari Garden, WANOWRIE, Pune-411 040. |
No. 14, 4th Floor, Destination Centre, Magarpatta City, Hadapsar, Pune-411 013. |
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