After reading the last the article on NRI investment options; one pertinent question that was asked by many readers was – should NRIs invest in India despite the rupee weakness?
One of the good option for NRIs to invest in India is Equities – be it direct equity or thru Mutual Funds – as Indian Equities have the history and propensity to generate surplus growth as compared to many parts of the world.
1.History about India’s economic growth & stock market:
India’s economy was structurally opened almost 30 years back i.e. 1991 and in last 30 years India has seen many crisis starting with Harshad Mehta scam, Asian currency crisis of 1997, Kargil War with Pakistan in 1999, Tech bust of 2000, unstable national governments in the interim periods, major Earthquake in Gujarat in 2001 , Global Financial Crisis led market meltdown of 2008, Satyam Scam in 2010, Demonitisation in 2016, DHFL and ILFS defaults in 2018/19 to latest Covid induced Crisis in 2020/21 alongwith many wars happening all around the world like twin tower attacks in US, Iran Iraq War, Iraq Quwait War, Afghanistan war which lasted almost 20 years+, & the ongoing Ukraine War etc.etc
As on 07th November 2022 – when I am writing this article, Indian rupee today is valued approx. one fourth of what it was in 1991 – it was Rs. 24.30 & today we have to pay around Rs. 81.92 to buy a dollar thus the rupee has devalued @ 4% p.a in last 30 years
BSE or Sensex has grown 61 times since 1991- it was 999.26 on 2nd January 1991 & today it is 61,185 – growing at 14.19 % p.a. (source: tradingeconomics.com)
If we check the similar period for US based DOW Jones – the index with top 30 US listed companies has grown 12.4 times from 2610 to 32400 growing at 8.46 % p.a. (source: macrotrends.net)
What lies ahead:
GDP wise, India is now fifth largest country worldwide. Indian economy is the world’s fastest growing economy today. The GDP forecast for the coming years by IMF & World Bank suggest the economy would grow at a pace of around 6.5% to 7%. It is estimated that India is contributing approx. 20% of world GDP growth and it is expected then in the years to come India will add approx. 25% of Global growth.
Some important drivers of Indian economy:
1. Demographic advantage & skilled labour force, especially in tech space will not only generate steady streams of family incomes but India is poised to be one the largest consumer market of discretionary spends worldwide
2. India is one of the rare economies of the world which has wide diversity as we are stronginservice sector & agriculture, India has some of the rich deposits of minerals & Coal & manufacturing sector is picking up enthused by the combination of various factors like Make In India, China+1, lower interest rates, PLI scheme; we have a robost banking and financial sector. Our Domestic tourism sector has picked up and has huge growth potential. Very rare economies of the world have such diversity as most of the countries are skewed dependence either on energy, minerals or tourism as their main source of growth.
3. In last 30 years Indian economy has opened up with umpteen reforms which has created strong headwinds for future growth & financial stability. India today has one of the most direct attractive tax structure& GST is getting widely accepted, leading to healthy tax collection for the governments – both central and state.
4. E-commerce & Digitisation: India’s digital economy is predicted to reach USD1 trillion by 2026. The high figure is due to the thriving Indian e-commerce market that is forecasted to reach USD74.8 billion this year alone, experiencing a 21.5% increase from 2021. The country has added 480 million Internet users in the last five years. With more affordable data plans, the country has seen a rapid pace of digitalisation. And this can lead to increased productivity, higher economic growth, and employment opportunities in new sectors such as ed-tech, fin-tech and e-commerce. In the manufacturing context, digitalisation has honed local capabilities and connected these manufacturers with global partners in the pandemic at the same enabled transaction capabilities at the lowest levels, domestically.
5. Finally, one of the key features of Indian stock market’s resurgent performance in recent times has been – inspite of FII’s continuous selling, the sound domestic flows especially thru Mutual Funds and EPF has provided immense stability; still the total unique PAN investors in Indian Equity markets could be well below 5 crore mark. In terms of MF penetration to the total population, India has just 2.5% of its total population invested in mutual funds. US has the highest population percentage investing in mutual funds at 46%. China closely followed US at 44%. Japan is the third in terms of MF penetration at 20%. If this maturity of Indian investors continues for another decade or more, then the Indian stock market can steadily grow in the times to come.
There are some inherent risks too which investors should keep in mind are i) the markets are fairly valued and any deviation from consistent growth can derail the markets, ii) Global Inflation is at all time high which if it trickles down to India, can lead to higher interest rates & devalue rupee further iii) unstable Geo-political situation iv) political instability in future which can lead to policy changes
To summarise, Equity markets have the inherent nature to be volatile and they will remain volatile in short term, but in long term Indian stock market looks to be in a sweet spot promising healthy growth.
Mutual Fund Distributor