India has been one of the best performing major stock markets globally in the last 30 years, compounding returns at 9.9% in US dollars since 1987, (better than the US and only fractionally behind Hong Kong). This performance has been generated during intermittent periods of weak coalition government, poor management of the economy and a lame currency. Investors should take heart that, over the long term, Indian stock market returns have been top of the class globally, not because of the government, but in spite of it.
Simply put, India has performed well because it has benefitted from, and continues to enjoy, strong investment fundamentals, setting it apart from most developed and developing economies. This has led to healthy GDP growth and robust corporate profitability.
Foremost of these fundamentals is a young population, 50% of which is under 25, creating a falling dependency ratio (ratio of non-working segment of a population to the working segment, expressed usually as a percentage), and a hearty appetite for consumption. This is supported by low levels of debt, particularly amongst consumers. This a potent investment cocktail when combined with low penetration of basic goods, a vast and expanding population and a technological revolution that is bringing communities closer together all over the world.
Einstein is reputed to have said that compounding returns are the most powerful force in the Universe. Given the opportunities that exist in India, Ocean Dial expects foreign investor interest to increase. If only a fraction of the country’s potential were to be fulfilled in the years ahead, Ocean Dial believes that Indian stocks should nonetheless remain near the top of the “compounding class” for the foreseeable future.
3 Ministry of Home Affairs, Government of India