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ENGINEERING
REVOLUTION IN
INDIA
In the past, the best Gross Capital Formation was between FY 04 to FY 12 where we grew at 17% and in the period between FY 05
and FY 08 we grew at 22%. Between 1980 and 2001, we had a long
capex cycle wherein we grew at 16%. Since FY 12, we have done
only 6.5% average growth and that too has been lumpy. By FY 23,
India will do about US$ 1 trillion in Gross Capital formation, which
is massive.
The last capex cycle was not very scientific. Everyone was
investing, without any market study being done. There were
loose lending rules. and when consumption started slowing
down, payback became an issue. At the same time there was a
global banking crisis which exacerbated the problem.
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KEY INGREDIENTS
FOR THE CURRENT
CAPEX CYCLE
- Banks' balance sheets are much cleaner. The creation of a
development bank is positive. Life of a loan is normally 5-10
years. But for infrastructure building, it is realised that we
need loans of 25-30 years.
- Cost of borrowing is low
- Corporate taxation has come down, especially for new
capacity.
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- Reforms
- - GST
- - Power Sector reform
- - Land Reform - now it is not so difficult to buy 5 acres to build an airport.
- - RERA
- - PLI Incentives - we have moved away from Subsidies to performance based incentives.
- - Labour reform
- Last cycle, all the investment was going to Maharashtra and Gujarat and partly to Karnataka. Now
there are many more claimants like the Andhra Pradesh, UP, Madhya Pradesh, etc.
- Centre is committed to start the cycle by increasing Capex by 22% this year.
- Family companies have no problem in selling some stake to International Private Equity.
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RISKS
- Political - Democracy vs Autocratic has to be settled or
postponed. India will be targeted by China for economic
reasons - we need to navigate this. India committing to the
group of four is a step in that direction
- Climate Change - We need to work towards global goals.
India has to develop the ESG model
- Technology Revolution brought in by China - Can we catch
up in selected areas? The 5G impact is going to be
massive.
- Investors Needed - Same old investors are continuing to
invest. The banking system growth is also needed along
with the ability to match with that demand.
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DEBT MARKETS
There is volatility in the fixed income market too. RBI is
likely to continue with its accommodative stance.
Inflation is rising but it is mainly due to supply
shortages more than demand/consumption based
inflation. There is still a steep yield curve of about 200
bps between long term debt and overnight debt
whereas the average has been about 75 bps. There is
not too much fiscal concern. If India is included in the
MSCI bond index, it would be a game changer for our
debt market.
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ACTION PLAN
- A - Asset Allocations - Stick to your asset allocation and do not get carried away.
- B - Balanced Advantage Funds - Where the equity
- allocations change depending on the valuations.
- C - Conservative Debt Fund - Where the equity allocation is normally up to 25% maximum.
- D - Debt - Could be floating rates or dynamic bond funds, but even in these times of low yields, some debt allocation needs to be maintained.
- E - Equity Saving funds wherein the equity allocation is low but taxation is equity.
- F - Fund of funds especially Asset Allocator Fund of funds which also hold gold.
- G - Gold - Maintain your investment in Gold.
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Although if you are able to take the volatility, stick to your equity investment as we see a bright future for India, barring any unforeseeable event, for the next 5-10 years.
May this Diwali bring you the blessings of good health and ample wealth.
Best wishes from Team Finnovators
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Celebrate Your Financial Freedom
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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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