India @75, Windmill Capital’s Desk

August 15, 1947 – the day when India got her Independence. Besides changing the dynamics of world politics, this day changed the lives of every Indian who was present at the time and also of the ones who were to take birth in this free country. From that point on, we have traversed a long distance, right from civil rights to stock markets.

You see, independent India was built on the tenet of socialism. Our leaders, back then, had a welfare-first approach and economic growth was never first on the list. Things began to change, albeit at a slow pace and almost after 30 years in 1977, the first Indian company (Reliance Industries) got listed on the stock exchanges. As far as stock exchange heritage is concerned, Bombay Stock Exchange (established in 1875) is the oldest exchange in Asia and the tenth oldest in the world. 

What is important to understand is that the investing culture wasn’t something we Indians were born with. Given our lineage, our ancestors saw poverty closely and always played the safe game. Gradually as globalization began to pick up and information started to flow across borders, Indians took to stock markets and began their journey of investing. 

Now, you must have noticed that whenever one talks about the potential of the Indian stock markets, one talks about its poor penetration. News headlines tell you that less than 5% of our country’s population invests in the markets. What they don’t tell you is the number of people who have the money to invest. As per data from the Income Tax Department, close to 5.8 crore Indians have filed for income tax returns. This means they constitute that section of the society that has the money to invest. Now let’s look at the number of demat accounts in India. CDSL’s data shows that as of June’22, there were ~6.5 crore demats across the country. Now suddenly, the penetration picture changes and it doesn’t look that bad. (Nithin’s post inspired this perspective, amongst many others! 🙂 )

Independence & Markets

Independence and Markets have one stark thing in common – futuristic outlook. Independence makes you seek out the future, markets compel you to. The nature of markets is packaged in a way, wherein you are constantly trying to figure out the eventualities of the future. Well, how do you do that? By analyzing past events and data to form patterns and expect them to reoccur in the future. This reminds me of a quote said by Mark Twain that justifies analyzing historical data –

‘History doesn’t repeat itself, but it does rhyme.’

Past & Future 

The question I am striving to address from this point on in this blogpost is – ‘Which sectors have outperformed the last 10 years and which ones have the potential to in the next 10 in India?’

For this purpose, I have calculated the 10-year returns for all the sectors, starting from December 31, 2011 to December 31, 2021. Please note that not all key sectoral indices have 10 years worth of data and hence are omitted from this exercise. Also, the returns shown in the table below are annualized to reflect CAGR. 

Doesn’t the common market narrative match with these numbers? IT and Financial Services have been market favourite since the turn of the century. While IT has been a propellent of technological advancement in the country, financial services has been the facilitator of economic progress in the country. You can corroborate this result with the sectoral representation of the Nifty 50 index, at present. 

You can see that more than 50% of the index comes in from Financial Services and IT, making them the heavy weights in India. They have done well on the back of a bouquet of factors starting from cross-border trades to digitization in the country. 

Coming to the most pertinent question at this point of time – what about the next 10 years? While it is next to impossible to predict anything, given the uncertain times we live in, our picks for the next 10 years are as follows –

• Infrastructure – The infrastructure sector holds great potential to outperform in India and is entering a new phase. With the entry of the Adani Group, industry dynamics have changed significantly and fresh capital expenditures (capex) are being taken by several players. The peculiarity about capex is that the benefit of this expenditure kicks in after a couple of years from the time of undertaking the expenditure. The point being, with better capacity utilization and sophisticated demand, this space can be worth keeping an eye out. Prime Minister’s mentioning of measures to take care of farmer’s income and rural houses provides tailwind to rural demand and affordable housing.
• Auto – It’s a no-brainer that the auto sector is undergoing a paradigm shift. The shift is from the conventional fuel engines to electric vehicles. The constant innovation has the vigour to drive performance for such companies and can reward an investor with a long-term vision. Government has been pretty explicit in providing a conducive business environment for EV makers in the country.
• Energy – We are the second-largest consumer of electricity in the world, with an extremely robust demand scenario. As the shift towards cleaner forms of energy is underway, companies that are ahead of the curve will stand to benefit and in turn will provide an upward thrust to the sector. In many regards, energy is on its way from becoming indispensable in each of our lives.

Beyond everything, the most important thing is to invest in yourself and in turn India. Our nation, rich with diversity and culture, has been making leaps and bounds of progress. Today, not just limited to the financial world, Indians have been doing wonders in different spheres and making a mark of this beloved country. Our folks are a great testament to the age old adage – unity in diversity. 

India @75 isn’t just a representation of the number of independent years our country has had, but also the mark of tenacity and grit on part of each and every Indian. India’s journey, in these 75 years, has been full of ups and downs. Perhaps, this is the hallmark of all great journeys. Your investing journey will also see ups and downs, but be certain of the fact that it’s going upwards and onwards.

To conclude, an extremely pertinent quote has to be used – ‘Leave this world a little better than you found it.’ Yes, that’s India for you. Happy Independence Day!

As an encouragement nudge for you to begin your investing journey, we at Windmill Capital are running an offer on our Annual Subscription with a 15% discount till August 31, 2022. You can use code (WIND15) to avail the same. Follow us on Twitter @windmillcapHQ for updates on our latest and existing offerings and interesting market insights. Also, feel free to let us know what else you wish to read!

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