The Emergence of India’s New Elite

Sep 10, 2024

Lecture Notes: The Rise of a New Indian Elite

Introduction

  • Speaker: Sor Mukarji, founder of Marcellus Investment Managers.
  • Overview: Insights on the rapid economic growth in India and the emergence of a new elite.
  • Context: India, the fifth largest economy and fourth largest stock market.

Japanese Investment in India

  • Japan has invested $25 billion in India over the last decade.
  • Notable Investments:
    • Suzuki: 45% market share in Indian cars.
      • Went public 20 years ago, share price compounded at 23%, up 70x.
    • Honda: 5 million two-wheelers sold annually.
      • Profits up 140x in 17 years, compounded at 36-37%.
    • Sony: Significant market presence in music systems and electronics.

Performance of Indian Stock Market

  • Over the last 20 years, India has provided the best dollar returns globally at 13.1%.
  • Comparison of returns:
    • India: 13.1%
    • USA: 10%
    • Taiwan: 10% (primarily TSMC).

Economic Growth Trends

  • India has shown significant growth compared to China and emerging markets.
    • $110,000 invested in India a decade ago would have doubled; China remained stagnant.
  • India ranked 140th in per capita income despite being the fifth largest economy.

Growth of Well-Rounded Companies in India

  • 162 Indian companies have compounded revenues at 10% with a 10% return on equity over 20 years.
    • India outperformed China, which has 126 such companies.
  • Return on investment for Indian companies averages 26% compared to 10% for Chinese counterparts.

Transformation of Companies in India

  • Previously had 600 consistently high-performing companies, now 6,000 companies growing profits at 15-25% over the last decade.
  • Challengers (around 5,000 companies) are now accounting for 25% of profits, growing faster than larger companies.

Key Drivers of Economic Growth in India

  1. Digital Infrastructure:

    • 55% of GDP now from mobile commerce and UPI (Unified Payment Interface).
    • Cashless transactions have transformed small business financing.

  2. Small Lending Growth:

    • Lending is growing at 35% through cash flow financing based on transaction visibility.

  3. Mobile Data:

    • Mobile data costs are significantly lower in India compared to developed countries.
    • Increased mobile data usage supports small businesses.

  4. Unified Tax System:

    • Shift to a national tax system in 2017 improved ease of doing business for small enterprises.

The New Indian Elite

  • Women: Significant economic progress and higher educational attainment.
  • Education: Shift from elite institutions to local graduates dominating boardrooms.
  • South India: Fastest growing region, accounting for half the GDP and 60% of growth.
  • Outsourcing: Growth in outsourcing of various sectors to India, creating job opportunities.

Concerns and Challenges

  • Automation Risks: Rapid automation could outpace job creation, leading to social issues.
  • Class Divide: The emergence of a new elite amidst persistent challenges for the lower classes.
  • Infrastructure and Environmental Concerns: Ongoing challenges in infrastructure development and environmental management.

Conclusion

  • India is experiencing a rapid economic transformation and the rise of a new elite, driven by various factors including digital infrastructure, women empowerment, and education.
  • There are significant opportunities as well as challenges that need to be addressed to sustain growth and ensure inclusive development.