India is the next trillion dollar opportunity: Raamdeo Agrawal

Raamdeo Agrawal, joint managing director of Motilal Oswal Financial Services

“India is the next trillion dollar opportunity,” Raamdeo Agrawal, joint managing director of Motilal Oswal Financial Services and the driving force behind the company’s investment approach, said during the 2016 Forbes India Leadership Awards held in Mumbai on Tuesday.

According to him, the first trillion dollars are the most difficult to get to. It took 58 years for India to become a trillion dollar economy in 2008. The second trillion dollars came in 2015, only seven years later. Agrawal believes the next trillion dollars will happen in FY20. "Henceforth, every successive trillion dollar growth will take fewer years, irrespective of the political situation," he said, adding that he expects India to be a $4 trillion economy by 2024.

Agrawal’s idea of growth is linear. When per capita GDP doubles, discretionary spend becomes 10 times [the usual amount], he said. This can be observed in car and AC sales. Vehicle sales went up by 24 times and AC sales shot up by 19 times in China when the GDP growth appreciated by 11 times in 18 years, ending in 2015.
 
The same can be expected in India. Discretionary spend is expected to rise from 52 percent in 2005 to 70 percent in 2025. India's share of the wallet will move from basic necessities to spending on health care, education, communication and transport. Health care accounted for 4 percent of the total consumption in 1995 which increased to 7 percent in 2005 and is expected to touch 13 percent in 2025.

In such a situation, Agrawal expects to see a hockey stick demand curve for the winner categories which occur when product prices meet affordability for a large section of consumers at a faster rate. As a result, the winning idea in investment is to buy a category winner at a reasonable valuation. In his presentation, Agrawal spoke about companies like Maruti Suzuki, Voltas and Asian Paints which have shown high growth in their sales and stock prices over the last many years.

Agrawal has taken this fundamental approach in his investment philosophy that has helped him spot gems like Hero Motors in the past. In 1995, he invested around Rs 10 lakh in the shares of the two-wheeler manufacturer at Rs 30 apiece, and held on to them for 20 years, till the share price rose to Rs 2,600 apiece. When he sold out in 2015, his holding in Hero MotoCorp was earning him Rs 3-4 crore annually in dividend income alone. What makes this noteworthy is that the rise was peppered with many dull periods. But perseverance and patience helped him stay with the stock for a long time and eventually make a huge return.

In a similar view, the trillion dollar growth bet also can suffer dull periods due to many reasons, but the growth of India to become a $4 trillion country is just a few years away.