India continues to be the fastest growing trillion-dollar economy in the world.
Are you in the race?
At current GDP of over US$ 2.7 Trillion, India ranks 6th in terms of size.
In the current year India is slated to replace United Kingdom to take the 5th position.
India is likely to overtake Germany & Japan by 2024 & 2027 respectively₁.
The GDP’s of USA & China₂ are currently larger than India by 7 times and 5 times, and their dominance to the World GDP is estimated to continue for over a decade.
Holding about 17% of world’s population the per capita income of Indians account for only 3.5% of World GDP.
Majority of the ‘Population in India’₄ is under 40. The costs of labor in India is less than half of China.
India is becoming more tax compliant and the country has seen 64% increase in IT returns filing and 40% increase in number of tax payers in last five years₅. Financial year 2017 - 2018 saw 7.41 crore tax payers.
Racing as the fastest growing large economy₃, India is all set to create over US$ 2 Trillion of wealth in next 5 years. The growth in the IT domain along with thrust on ‘Make in India’ remains the key to create expansive employment opportunities which will lead India to next league with higher per capita income & increased consumer spends.
Sensex Performance during different Governments
The past records of economic growth & key parameters between Congress/UPA and BJP/NDA barring short term exceptions does not reveal any significant growth or downfall.
The euphoria of ruling party seems to be more on the emotional level as systems & policies at macro level in India are pretty stable.
India's policy measures are well defined and not much of change is foreseen irrespective of who forms the ruling government in 2019 as the policies either ways have to be contained a) within the realm of agreements in force with major countries concerning duties, exemptions & quotas
b) within available budgets without significantly increasing fiscal deficits.
The fact remains that India has grown from 31st rank to 6th rank in three decades even while witnessing major political upheavals.
Congress & UPA ran the Government for almost 25 out of the last 39 years whereas BJP has been in power for 10 years.
BJP led NDA Government tenure saw a dragging SENSEX yielding a third of return compared to the rule of Congress and Congress led UPA Government. In Congress regime SENSEX delivered 44.64% annual returns, in congress led UPA 35.88% and in BJP regime SENSEX delivered mere 8.88%.₇
While the current rule under the leadership of Sri Narendra Modi yielded 14.75% annual returns, the previous BJP rule during 1998 to 2004 delivered sub 5% returns.
The euphoria of Modi as PM prospect saw SENSEX gaining by about 16% during Jan 2014 to May 2014.
The UPA Government rule during 2004 – 2014 saw SENSEX delivering over 35% average annual returns.
Irrespective of Government, in the long run performance of listed companies and their outlook eventually defines market growth.
The Journey of Sensex
Our in-house research of opening values and subsequent high of Sensex for 39 calendar years shows a earning potential of 28.89% average annual non compounded returns.
Average annual returns by Sensex in last 39 years is 20.21% (without compounding). The markets since inception has never given negative returns beyond two consecutive years.
A study of SENSEX over consecutive 3-year period in last 2 decades showed only 1 instance of negative return and average return of 50.22%. The modal point is that investments made wisely on stock markets over a 3 year or more horizon carries minimal risks of capital erosion.
The Power of Compounding with High Returns
The power of compounding on savings generating higher returns in long run can make huge difference in your capital. For instance, 1 crore investment at 9% for 10 year will fetch 2.37 crores whereas at 20% (average return on Sensex over last 39 years) will fetch 6.19 crores.
The moot questions remains, "Are you investing profitably?"
₁ MFSL Estimates - The economy of United Kingdom is currently just about $25 billion bigger than India's. In the post-financial crisis years from 2010 to 2017, UK's economy has grown by a little under 2 per cent on average. India's economy has grown by 7.3 per cent on an average during the same period. If both economies continue growing at the same pace, India will overtake UK this year.
Germany grew by almost 2 per cent between 2010 and 2017. Currently World Bank has pegged Germany’s GDP at $3.7 trillion. If Germany, Japan & India were to continue growing at the same rate, India will overtake Germany by 2024 & Japan by 2027 to become the 3rd largest economy in the World
₂ MFSL Estimates - The U.S. has retained its position of being the world’s largest economy since 1871. China has experienced exponential growth over the past few decades, breaking the barriers of a centrally planned, closed economy to evolve into a manufacturing and exporting hub of the world. Back in 1980, China was the seventh-largest economy with a GDP of $305.35 billion while the size of the U.S. then was $2.86 trillion. The World Bank projects a growth at 6.6% in 2018 which would sober down to around 5.5% by 2023. Over the years, the difference in the size of the Chinese and the U.S. economy has been shrinking rapidly and by 2023 the difference would be of $2.96 trillion. We estimate China to displace US by 2027.
₃ as per World Development Indicators database. IMF report released in October 2018 mentions that “since 2014 with the exception of 2017, India's economy has been the world's fastest growing major economy, surpassing China”.
₄ Census of India 2011 - Share of population in the age group 0-14 is 30.96 percent. Share of economically active population (15-59 years) is 60.29 percent. 8.58% Indian has age more than 60 year. India has doubled in size in just 40 years, and is expected to unseat China as the world's most populated country in the next couple of decades. India's current yearly growth rate is 1.08%.
₅ Tax Payer is a person who either has filed IT returns or who has not filed IT returns but in his favor, tax has been deducted at source (TDS)
₆ During the last 39 years except for period of BJP NDA rule during 1998 to 2004 and 2014 to present, Congress and Congress led UPA ran the Government at center for most of the period.
₇ Annualized growth in Sensex – covers rule of respective Government between the period 14th January 1980 to 19th April 2019. MFSL Computation.
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