Why Equity Investments in India will do well in the long run - The Nano Reason

Hi Friend,

As I write this article, we are passing through a correction in Equity Markets all over the world.

There is a shade of negative sentiment akin to what we saw towards the end of 2008.

People are worried / stopped investing / waiting for the right time to invest (?) and some people are even contemplating redemption of their equity based investments.

I believe these are the times to increase your investments in India, not stopping them. 

I am sure you will agree with me after going through the following observation.

Observation: 

• Indian Population is estimated to be around 120 crores now.

• I assume here that Indian Government does not allow this population to grow for the next 25 years, i.e. the number of people in India is simply locked for the next 25 years.

• I am confident that not many of you will differ with me if I say that an ordinary middle class Indian would aspire to have the following material things - a House, a car, a Television / computer , a fridge etc., 

• I will take the case of car( Nano ) for the sake of simplicity in my calculation.

• Here I assume that only 10% of these 120 crore people i.e. 12 crore people will be able to buy only a Nano car over the next 25 years (nothing priced higher than that as “Indians are poor”). The minimum price of Nano as we all know is Rs.1,00,000/-

• That is a business volume of Rs.12 lakh crore. 

• Here I am assuming a net profit margin of 7% (Manufacturing business margins will be around this figure). 

• Resulting in a profit of 84,000/- crore rupees, which in turn implies an average profit of Rs.3360/-crore (84,000/25=3360) per year for the next 25 years. 

• The current net profit of Tata Motors, which manufacturres Nano, is around 1500 crore only.
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However, there are certain fundamental flaws in my assumptions.

Flaw No.1: 

• 'Indian population is not going to grow'- in reality it simply is not possible. There are going to be higher number people, meaning much higher business and even higher profits to be made.

Flaw No.2:

• 'Indians will buy only a Nano car because they are poor'- in reality the average cost of a Car purchased by an ordinary middle class Indian now a days is around Rs.3 lakh.

Flaw No.3: 

• 'Only 10 % of the above 120 crore i.e. 12 crore people will buy the car in the next 25 years' - One estimate is that 70% of current Indian population is below the age of 35 years.

• These are people with growing purchasing power and it is highly likely that many of these people will buy a car in their life span not just 10%. 

• In the USA almost all the people do have a car and we are about 25-30 years behind the USA.

If it is the growth in profit from just Rs.1 lakh car, imagine the kind of profit to be made from a Rs.30 lakh house / apartments, roads, bridges, dams, power plants worth thousands of crores of rupees that are being built.

No matter what the doomsayers say and no matter what our fears are, India is going to grow and probably more than any other country. Our population is our strength. 

We will survive come what may and we will try to fulfil our aspirations and therein lies the great business opportunity that India has never seen until now.

It is a great time to be in India and Invest in India and grow with India. 

Jai Hind. Happy Investing.