The three most important things which will make this bull run sustainable…..
I do believe we're in a bull cycle similar from 2003 to 2006-07. I think the difference this time around is not going to be a service-led growth economy, it's going to be a domestic-led economy, and that will be very powerful in terms of earnings.
I've been speaking to a lot of high net-worth individuals and business people. For the first time in years I've heard people say, and it's a very powerful statement, is that I'm proud to be Indian again. I go back to my days in the U.K. under Margaret Thatcher when that belief and commitment to change was there and it's a very, very powerful statement.
The third point is that in meeting foreign companies here, the statement they are making is that globally all eyes are on India. Because they see it as being the engine of growth away from China and that's a big to big difference from the 2003 to 2007 period. So if GDP growth can grow from 5.5% to 7% over the next few years, we'll see operational gearing coming to India and the earnings story in India is just beginning.
What the current government can do that will help catalyse these trends….
We all know what reforms need to be implemented. After the recent reforms, I think if the government can keep the momentum going-- just the momentum of reforms, it doesn't have to be big bang, just incremental. This confidence, both locally and globally, will continue to fire the GDP growth for India.
We have a lot of belief in Prime Minister Modi, but I'd like to see maybe some of the reshuffling we've seen. I'd like to see a stronger team around him, which will take him away from being, say, Chairman and CEO maybe to the CEO and other people are running the other parts of the economy more effectively. That's what I'd like to see as a progression over the next 6 to 12 months.
The investment cycle just disappeared for the best of the last five years, thanks to the global financial crisis, thanks to inertia, a bunch of things that happened on the previous government's watch. Do you think it's important that we look for signs that the capital spending and investment cycle is going to revive because we haven't yet seen signs of it? Five months down the road there are no signs that corporate India believes they need to kick start investing....
Why do they need to? Manufacturing capacity utilisation is running around 50-60%. So, even as the economy grows, they can put their stuff through the factories without having to build. So, it is a 2-year cycle before we start to see Capex by corporate India coming in.
What I think will happen is that the government will kick start these stalled projects across the country and we know that the multiplier effect on the GDP will start to propel that and then you will get again build on the confidence, and if the momentous reforms which we've heard about continues then foreign direct investment will follow.
Because everyone is looking for growth around the world and India is giving you that.
So, I don't think you need to say the capex cycle is a confidence factor. I think the confidence factor is there. I am not looking at the capex cycle because I think that's two years out. I am looking at what's going to happen in terms of the government kick starting the economy and then you get the multiplier effect and then corporates will start to benefit from that in terms of manufacturing.
This is a domestic India story. India is the only country I know that moved from agriculture straight to services, and missed out manufacturing. So we will go back to manufacturing.
I think that would be the catalyst for huge growth in earnings over the next few years and your two-tier market will become a different tier as the supply theme, whoever supplies India is going to make a lot of money in India.
