India's Journey of Growth & Innovation Will Benefit Indian stock markets Too

17 Dec 2020by Research & Ranking

India's Journey of Growth & Innovation Will Benefit Indian stock markets Too

India - our country is full of diversity, culture, colours and heritage. We all know this, as our schoolbooks gloriously capture this beauty. But India is much more.

India has been growing rapidly over the past few years, especially post-liberalization in 1991.

Before I talk about this growth, what immensely hurts me is that India's image is still often projected as 'land of snake charmers'.

To this, I remember a beautiful reply by our Prime Minister Narendra Modi in 2019.

"They are forgetting the fact that India has moved ahead of snake, it is moving ahead with 'mouse'. They are not snake-charmers anymore, they now use the mouse of a computer."

The above statement captures the rapid growth in the IT sector, digital revolution and innovation that India has witnessed over the last few years.

How India has evolved with regards to the innovation, GDP growth, GDP per capita, and industry growth with time?

1. Innovation Index

There are many indices developed to capture the innovation of different countries. To understand how India has performed in terms of innovation capabilities and results, we will take reference of the Global Innovation Index (GII) published by Cornell University, Insead. As per GII data, India's performance on the world stage concerning innovation is consistently improving. Thanks to the initiatives introduced in recent times (Digital India, Startup India, Atal Innovation Mission), the country's innovation ecosystem has had a positive impact.

Year

GII Rank

Total Countries

2014

76

143

2015

81

141

2016

66

128

2017

60

127

2018

57

126

2019

52

129

2020

48

131

 

Source: Global Innovation Index

 

R&D Expenditure (% of GDP)

2000

2005

2010

2015

2018

World

2.06

1.96

2.02

2.09

2.27

India

0.75

0.82

0.78

0.69

0.65

China

0.89

1.30

1.71

2.06

2.18

Mexico

0.30

0.39

0.49

0.43

0.31

Brazil

1.04

1.00

1.16

1.34

1.26*

Thailand

0.24

0.21

0.36**

0.61

1.004*

Russia

1.05

1.06

1.13

1.10

0.99

Argentina

0.43

0.42

0.56

0.62

0.54*

South Africa

0.71#

0.86

0.73

0.79

0.83*

* Data for 2017, ** Data for 2011, # Data for 2001   Source: World Bank


Irrespective of improvement in GII ranking, its expenditure on research and development presents immense scope for improvement. As seen in the above table, its R&D expenditure is impressive when compared to other developing economies like Mexico and Argentina. However, to mark its footprints on the globe, it needs to work holistically to upwards these trends, which is comparable to the level of BRICS economies.

2. India's Share In Global GDP

India has come a long way - from a share of 1.70% in 1980 to more than 3% by 2020 in the world GDP.

Here is another exciting data - In 2000, with a contribution of 1.41% to the world's GDP, India ranked 13th based on % share in world GDP. Now, it is ranked 5th. In recent years, it has continued upward trajectory to enter the list of world's top 5 economies, even ahead of other countries such as the UK and France.

Rank for FY19

Country

GDP (in $ tn)

% of Global GDP

 

World GDP

87.5

100

1

US

21.4

24.5

2

China

14.3

16.3

3

Japan

5.1

5.8

4

Germany

3.9

4.5

5

India

2.9

3.3

6

UK

2.8

3.2

7

France

2.7

3.1

8

Italy

2.0

2.3

9

Brazil

1.8

2.1

10

Canada

1.7

1.9

 

Top 10 countries

58.6

67.0


#3. GDP Per Capita

In simple terms, GDP Per Capita of a country is nothing but a measure of a country's economic output that accounts for its number of people. It is calculated as the GDP of a country divided by its population. Though China registered the fastest growth of 13% over the last 28 years, India has been growing at a rapid rate of 7% as compared to other emerging economies such as Russia, Brazil and Mexico.

 

1991

1995

2000

2005

2010

2015

2019

Avg growth rate
in last 28 years

India

303

373

443

714

1357

1605

2104

7%

Russia

3490

2665

1771

5323

10674

9313

11584

4%

Mexico

3661

3928

7157

8277

9271

9605

9863

4%

Brazil

3975

4748

3749

4790

11286

8814

8717

3%

Thailand

1716

2846

2007

2894

5076

5840

7808

6%

US

24342

28690

36334

44114

48467

56822

65118

4%

China

333

609

959

1753

4550

8066

10261

13%


#4. Ease Of Doing Business

This rank is based on various indicators such as - regulation and laws for starting a business, construction permits, registering property, getting credit, paying taxes, getting electricity, trading across borders amongst many others.

The country ranked 77th among 190 countries in 2018. Sustained economic reforms to address the business challenges, helped India earn applause from the world and jump to 63rd place in 2019.

Ease of doing
business

2011

2012

2013

2014

2015

2016

2017

2018

2019

India's rank

132

131

134

134

131

130

100

77

63


#5. From Traditional to Modern

Talking about India, India has come a long way. While agriculture generated approx. 60% of the country's employment opportunities in 2000, the people employed in this sector stands at 41.5% today.

% of total employment

 

2000

2010

2020

Agriculture

60%

51%

42%

Services

24%

27%

32%

Industry

16%

22%

26%

Value added, % of GDP

 

2000

2010

2019

Agriculture and allied

22%

17%

16%

Services

43%

45%

50%

Manufacturing

16%

17%

14%

Over the last few years, India's dependence on the services and manufacturing industry has been growing at a steady pace. This transition from the traditional sector (agriculture) to the modern industry (services + manufacturing) will act as a significant catalyst for Make in India and other government initiatives. This in turn will propel growth and development for the country.

Projections Going Forward

India's growth trajectory till now has been quite impressive. But why I am telling you all this?

Considering India's GDP growth, I have been hearing a lot of negative news that India's growth has been impeded and $5 trillion economy is a distant dream. I agree that $5 trillion milestone has been postponed a bit, however, considering the on-ground activities, we are well-placed for the next phase of growth.

The growth story of India remains robust and resilient due to faster than expected recovery, economic reforms, demographic dividend of the country, digital transformation, employment opportunities backed by Skill India, Make In India and government's vision to adopt China Plus One Strategy.

The growth on the world stage has been impressive until now. Backed by robust fundamentals, India is expected to grow leaps and bounds over the coming years. And with many high-frequency data points such as manufacturing PMI, services PMI, GST collections, auto sales, etc. back to pre-covid levels, there's no reason why we cannot replicate the same growth (mentioned above) as we did in previous years.

Goldman Sachs revised FY21 India's growth forecast upwards at -10.3%. The initial forecast was a contraction of 14.8%. However, in its global economic analysis report titled 'V(accine)-Shaped Recovery', Goldman Sachs also forecast India's FY22 GDP growth at 7.3%, which is one of the highest among the world's top 10 economies. Isn't that an encouraging news?

Having talked about the economy and its growth saga, why should an Indian investor care about all this?

Indian stock markets will always follow the Indian economy

If the economy grows, quality businesses will surely have to grow and in turn the Indian stock markets will also grow. And to gain the most out of this, the mantra is simple - Invest in Companies That Drive This Growth.

To make things easy for you, our team of experts have created a list of 20-25 multibagger stocks after detailed research. Yes, these are the stocks which will grow by 4-5 times over the next 5-6 years as India grows. Click here to invest in them.

 

 

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