»5 Minute Wrap Up by Equitymaster

On This Day - 23 MAY 2018
India's Population Pyramid Works to Make Our Next Recommendation a Success

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Sarvajeet Bodas, Research analyst
  • I skate to where the puck is going to be, not to where it has been. - Wayne Gretzky, Canadian Ice Hockey Player

You may have heard of this quote. It has become a corporate cliche.

But it has a simple meaning.

If you focus on the either the present or past - where the puck has been - then you're sure to fall behind. Focus on the future - where the puck is going to be - and you will remain ahead of the curve.

This quote has long been used by business consultants, CEOs, and other visionaries to sum up the importance of looking ahead to the future.

Of course, it's impossible to predict the future.

But it's possible to anticipate what's on the horizon. Or foresee where the proverbial puck is headed.

With this in mind, Kunal and I were looking at an important trend. We were trying to pick our next Smart Money Secrets stock recommendation by looking ahead.

What is the trend?

Not artificial intelligence. Or blockchain technology. Or some fancy electric vehicle stuff.

Actually, it's an obvious one.

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India's population.

More specifically, our country's population pyramid.

What is a population pyramid?

It's a graphical representation of the age and gender composition of a given population. In our case, that of India.

The shape of a population pyramid can be used to interpret a given population. We can also use it to anticipate a population's trajectory.

Take a look at the population pyramids of India and Japan.

Population Pyramid of India and Japan

The graph, shows that India has a large population of young people (mostly concentrated between the ages of 5 to 39).

On the other hand, Japan's population is dominated by elderly people (mostly concentrated between the ages of 40 to 79).

India's average age is 27 years compared to Japan's average age of 47 years.

Really, India's population pyramid should be an eye-opener for companies wanting to leverage this trend.

A young population means there are a large number of working people. And this means higher disposable income and conspicuous consumption.

We tried to find companies that will benefit from India's demographic dividend.

And we found one.

The management of this company completely understands the concept of 'where the proverbial puck is headed'.

This company has created a niche market for itself by specifically targeting India's young population. In fact, it recently launched new products for an even younger age group. Revenues will grow faster due to this.

By targeting the right age group, the company managed to clock an annualised revenue growth of 23% in the last five years. Profits have grown at a whopping annualised rate of 73%.

Despite its fast growth, the company has kept its balance sheet asset-light. That's what really convinced us to recommend the stock.

With the recent correction in small-cap stocks, this one is available at an attractive level.

We will publish the detailed Smart Money Secrets recommendation report by this Friday.

If you don't have access to Smart Money Secrets, you can get it here.

Chart of the Day

We are nearing the end of May. That's almost five months of 2018.

While the BSE-Sensex has increased marginally so far, the mid and small cap indices have fallen between 10% and 12%.

But that's just the indices. Individual mid and small caps have fallen much more.

Mid Cap and Small Cap Indices Have Underperformed the Sensex

The steep fall in these indices is due to several reasons.

First, there has been some profit-booking in the mid and small cap space. After all, these indices were sharp outperformers in 2017.

Second, rising crude oil prices and a falling rupee have taken a toll.

And third, there is some pressure in this space due to the re-alignment of investments by mutual fund managers prompted by the recent changes in regulation.

With this correction, several good quality small caps have also corrected.

This is a good entry point into some of them.

And the Smart Money Secrets team found one such stock in the small cap space. With the recent correction, the stock is available at attractive levels.

We'll publish the recommendation report by this Friday. You can get access to Smart Money Secrets here.

Sarvajeet Bodas
Sarvajeet Bodas
Research Analyst, Smart Money Secrets

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