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Stocks which will become future blue-chips like Infosys, Bharti, and Page Industries – are right here in this segment. And this multi decade growth journey has just started, do not miss, find these great stocks and invest now!

“Opportunities come infrequently. When it rains gold, put out the bucket, not the thimble.” - Warren Buffett

The story of India’s middle class

India has a huge domestic market which is one of the main reasons of its growth. The largest buyer category in India is the middle class. 600 million people, or more than half of India's population, belong to the middle class.

It is estimated that average real wages will triple between 2018 and 2030.

Economists have defined middle class as people spending anywhere between $2 and $10 per capita per day.

Economy grows if people have buying power, if their income is rising. And India has been performing well at this front. Since 1990, households with high disposable income have risen twenty-fold.

The number of households with a disposable income of more than $10,000 has leapt from around 2.5 million in 1990 to nearly 50 million in 2015, according to Euromonitor International, see chart below -

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Since 1990, households with high disposable income have risen twenty-fold.

Household savings have grown seven times

Indian household saving rates have also leapt. From year 2000 they jumped over seven times as more were lifted out of poverty and found themselves with disposable income for the first time.

 

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Homi Kharas, an expert on the global middle class, estimated in a recent study that 3.2 billion people, or 42 percent of the total world population, are now in the global middle class. The group’s size increases by 160 million people a year, and assuming current rates of growth, in a few years most of humanity will live, for the first time in history, in middle-class homes or better.

But the middle class has grown at different rates in different places. While in the United States, Europe, Japan, and other advanced economies, the middle-class market grows at a meager 0.5 percent each year, in China and India that market expands annually at 6 percent. Although the middle class is now bigger than ever in countries like Nigeria, Senegal, Peru, and Chile, its expansion is primarily an Asian phenomenon. According to Kharas, the overwhelming majority (88 percent!) of the 1 billion people who will join the middle class in the next few years will live in Asia – with India having the largest middle class population.

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Source: Homi Kharas, Brookings, 2011

Middle class consumers in the US and other G7 powers have been a key source of demand in the global economy for the last 50 years. But with weak expected growth in US and European consumption going forward, where will future global demand growth come from?

The answer is the middle classes in emerging economies, especially in Asia.

We are reaching a tipping point, where over the next several years the global middle class will expand dramatically. This is one of the most important features of today’s global economic landscape.

The future of India’s Middle Class

  • Small today (5% of population), but set to expand dramatically.
  • India could be the world’s largest middle class consumer market by 2030, surpassing both China and the US.
  • Between now and 2039, India could add over 1 billion people to the global middle class.

 

Future Blue Chips are right here in middle class segment

When Infosys was listed, IT was at beginning stage in India.

When Bharti Airtel was listed, telecom revolution was just beginning

When Page industries was listed, India was just starting to …, (just Jockying!)

Well there is always a budding blue-chip stock around if you care to look at it seriously. It depends on at the minimum two things – there should be a long term growth in that industry and the company should have capability to tap it.

As you can see in the chart here, there is going to be massive growth of India’s middle class, it implies that all companies selling to this segment will see long term growth. But at the same time there is cut-throat competition and low profitability. In most of the consumer oriented businesses in India there is very low brand loyalty and heavy competition, that eats into the profit margins.

When the going is good, every Tom, Dick, and Harry stock will rise in a bull run, but the real gains come from picking the best in class.

There are companies in India in this segment operating in fields where competition is low due to very high entry barriers and they operate at hefty margins. Their growth phase has just started and is going to last for decades.

Those investors who look for short gains will miss these great opportunities. Many investors look at investment for few months, almost all broking research highlights investment recommendations based on short term events or quarterly reports. This way is not going to help you identify winners like Infosys, Bharti, or Page in their infancy.

"The stock market is a device for transferring money from the impatient to the patient." - Warren Buffett

Investing is not a rocket science, but it does need a lot of foresight about the future. In fact, the ability to foresee the future is the main investment skill. Almost all successful investors have followed the same approach – of identifying the right stock in the right industry at right time.

“The business schools reward difficult complex behavior more than simple behavior, but simple behavior is more effective.” - Warren Buffett

If you look at how India’s middle class has grown, you will agree that there are enough reasons for it to continue growing. We have identified the best stocks to benefit from India’s unprecedented growth – stocks having exceptional fundamentals, rock solid leadership in industry, heavy entry barriers, and lucrative margins.

Though we recommended to invest when Nifty was 10900, it is still right time to invest.

Successful Investing

To help you take better investment decisions, we are reproducing here quotes from world’s most successful investor Warren Buffett –

“Wall Street makes its money on activity, you make your money on inactivity.”
“Beware the investment activity that produces applause; the great moves are usually greeted by yawns.”
“Only buy something that you’d be perfectly happy to hold if the market shut down for 10 years.”
“If you aren’t thinking about owning a stock for 10 years, don’t even think about owning it for 10 minutes.”
“Our favorite holding period is forever.”
“An investor should act as though he had a lifetime decision card with just twenty punches on it.”
“Time is the friend of the wonderful company, the enemy of the mediocre.”
Published in Macros

Performance

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