How to Grow Your Wealth as India Becomes a Developed Nation

It's every Indian's ultimate dream: To live in a 'developed nation'.

This can happen in two ways. Either wait for India to become a developed nation or move out of the country and settle abroad.

Until now the second option was the only option. Hence the mad rush for foreign work visas...and the vast industry it has created.

Hardly anyone believed that India could transform itself into a developed nation in their lifetime.

But things are changing.

For the first time ever, ordinary working class Indians are starting to think they might spend their retirement in a developed nation...without traveling abroad.

This thinking is more prevalent among the youth. Many young adults, in their 20s, seem convinced that it's only a matter of time before India achieves this coveted status.

This raises some questions. Are they right? Or is it a pipe dream? And if this belief is justified then when will India become a developed nation?

To answer these questions, we must first understand what it means for a country to be 'developed'.

What is a Developed Country?

In very simple words, a developed country is one in which...

• People enjoy a high quality of life.
• There is abundant use of advanced technologies.
• There exists vast physical and social infrastructure that helps sustain economic growth.

What do we mean by these terms - 'high quality of life', 'advanced technologies', and 'physical and social infrastructure'?

Let's consider them one at a time...

• High quality of life

  People in developed countries live their lives in a fundamentally different way compared to people in other countries.

  Here are some of the defining features of a high quality of life.

  • Physical safety is assured i.e. crime rates are low.
  • Good quality education that increases productivity.
  • Jobs that offer advancement and high salaries.
  • Freedom to easily start a business as well as access to talent and capital.
  • High level of home ownership.
  • A wide variety of products and services are conveniently available.
  • Easy access to banking services, insurance, credit facilities, investment options, and retirement planning.

  As you can see, India does not tick all the boxes.

  Here are just some points that come to mind...

  • Until recently, most of India was unbanked.
  • Even now, many women would refrain from travelling at night due to security concerns.
  • Buying a home is not easy for most salaries and self-employed people.
  • Retirement planning is a dream for most Indians. Many families still rely on their children.
  • Most Indians are sadly unaware of the power of credit, as they have never had access to it.

  I'm sure you can think of many other points, dear reader. But now let's examine the other aspect of a developed nation.

• Advanced Technologies

  People and businesses in developed countries are familiar with and are comfortable using many technologies that would be considered 'too advanced' in other nations.

  Here are just two examples...

  • Amazon uses data mining, artificial intelligence, and predictive analytics to show you products that you are likely to buy.
  • TSMC in Taiwan and Samsung in South Korea are the only two firms that manufacture 5 nanometer semiconductor chips. ASML in the Netherlands in the only firm in the world to produce the extreme ultraviolet lithography machine that is used to make the most advanced semiconductor chips.

  There are many other examples like jet engines (US, France, UK), robotics (Japan), space technologies (US, Europe), and many others.

  The good news is that India is not too far behind. In fact, India has mastered many advanced technologies. Examples include the domains of nuclear and space.

  There are even some areas in tech and finance (e.g. UPI) that India has done better than the developed world.

  However, we are far behind in many areas. Sustained investments, both public and private, are needed to ensure that India covers the gap.

  Now let's examine the last point.

• Physical and Social Infrastructure

  Visit any developed country and this is the first thing you will notice.

  If there is one point everyone in the world would agree on it's this: Infrastructure is what separates a developed nation from a developing one.

  After all, isn't that what the words 'developed' and 'developing' signify? A developing nation is still 'developing' its infrastructure. That's why it hasn't developed yet.

  Infrastructure is so important that governments of most developing nations devote a large part of their annual budgets to it.

  India is no different. The government spends a huge part of its budget on various infrastructure projects. In the recent budget, the government allocated Rs 10 trillion for infrastructure. So in this regard, India is catching up fast.

How Long Before We Get There?

So now that we have seen what it will take to become a developed nation, the big question is how long before we achieve it?

Here we need to address the real problems that have held us back so far.

In a nutshell India needs to do the following:

• Develop world class physical infrastructure (roads, railways, ports, airports) and ensure last mile connectivity.
• Generate a power surplus with adequate electricity supply for every household, commercial establishment, and industrial unit, throughout the year.
• Reform the education system so that it produces critical thinking individuals who can solve problems.
• Invest in basic as well as advanced healthcare infrastructure so as to boost productivity.
• And finally, focus on manufacturing and agriculture as engines of growth.

The time taken to tick these boxes will decide how long we will wait to become a developed nation.

The Big Winners in the Transformation

In the massive economic transformation currently underway in India will change the lives of 1.4 billion people. There will be opportunities to create wealth on a massive scale.

As India makes steady progress to becoming a developed nation, the economy will create huge opportunities for entrepreneurs of all kinds.

At the end of the day, there's only so much the government can do. It's up to the private sector to do the heavy lifting. If India is to quickly scale its economy and join the ranks of a developed nation, the entrepreneurs of the country will have to take the lead.

But this does not mean all businesses will prosper equally. The will be some industries that will do better than others.

So which segment of the economy will be the biggest winner from India's transformation into a developed nation?

Manufacturing: A Gold Mine Hidden in Plain Sight

Manufacturing will be the biggest beneficiary of the government's massive infra push. Make in India will succeed only if it's backed by world class infrastructure.

India has been building roads at a record pace. The railways have received record amounts of funds to expand as well as modernise their network. Ports have received vital coal linkages. New airports are coming up all over the country.

Electrification of the entire country is almost complete. Initiatives to get clean drinking water and natural gas to every corner of the country is proving to be a success.

All this has had a hugely positive impact on Indian industry. The government has also done a commendable job in creating a business friendly culture in India. The national manufacturing policy and the PLI schemes are steps in the right direction.

Then there is the Indian start-up boom and the digital revolution. This has pushed traditional industries to modernise. Indian manufacturing is slowly but surely moving towards being more automated and process driven.

This is already showing benefits as companies across sectors have started to profit from the cost savings and higher value addition. This will also drive more domestic production as components that were being imported will now be made at an affordable price domestically.

There is also China Plus One. India has emerged as an attractive alternative to China for countries looking to diversify their manufacturing operations.

When we put all this together, we conclude that the Indian manufacturing megatrend is here to stay.

Manufacturing Stocks for Long-Term Investors

Investors in the stock market should not miss the huge long-term wealth creation opportunity in Indian manufacturing.

But which sectors or themes are the best ways to play it?

Here we present some ides. Please note this is not comprehensive and probably will change in the future. Also this is not a recommendation to buy any stock.

• Electronics/Semiconductors

  In March 2020, the Indian government approved a new incentive program called the Production Linked Incentive scheme (PLI) for large scale electronics manufacturing.

  This was to target makers of mobile phones and certain electronic components by offering financial incentives to start or build up their existing domestic manufacturing capacity.

  The government had approved 32 beneficiaries under the scheme of which 10 (five foreign and five domestic companies) were approved for mobile manufacturing.

  India is also building up its semiconductor industry.

  This will help to produce products locally and gain a competitive advantage. Just a few years back, we didn't have many options when it came to semiconductors.

  But now, we are seeing small and medium-sized companies innovating and introducing semiconductor parts that offer unprecedented power for the price.

  This is a big opportunity for not just Indian investors, but also ambitious startups, and even large corporations that want to be at the forefront of this boom.

  In the next 20 years, massive demand for application processors, memory chips and connectivity solutions will make India a global semiconductor hub.

  Investors should keep a hawk eye on the developments in India's electronics ecosystem.

• Renewable Energy

  Rising environmental issues have forced us to think a lot about sustainable alternatives.

  Be it a shift from plastic bags to paper and cloth bags or coal to solar and wind energy, we've all been thinking 'green'.

  Renewable energy, green hydrogen, and electric vehicles promise a safe future. Though new to the market, developments in these emerging themes are happening at a very fast pace.

  A lot of money is being invested in capturing the growing demand for green energy.

  There are exciting opportunities for investors in this space. Investors should have on their radars, stocks with a focus on wind and solar energy, green hydrogen, energy exchanges, power producers, component manufacturers, and the broader clean energy ecosystem.

• Electric Vehicles (EV)

  This one is a no brainer. Every auto company in the world has a plan for the EV space.

  In India Tata Motors has taken a big early lead. But the contest is far from settled.

  There will be opportunities galore in this space over this entire decade. Investors should take their time to study this industry and find the right stock ant the right time.

  You see, according to a report by the India Energy Storage Alliance, the EV market in India is expected to grow at a CAGR of 36% until 2026. Furthermore, the EV battery market is expected to grow at a CAGR of 30% over the same time period.

  After recovering from the Covid-19 pandemic, the Indian automobile sector is growing rapidly in 2022-23. Electric vehicles, particularly two-wheelers, are expected to have increased sales in 2022-23.

  By 2030, India might be a global leader in shared mobility, paving the way for electric and autonomous vehicles.

  By 2030, the electric vehicle industry is also expected to generate 50 m jobs. Observing governments' plans for this sector, several automobile firms are diving into the electric vehicles business.

  To meet India's EV ambitions, a cumulative investment of US$ 180 bn in vehicle production and charging infrastructure would be required until 2030.

  Looking at these initiatives by the government, one can imagine how stocks in this sector will become a multibaggers in the future.

• Defence Manufacturing

  This will be huge. Defence spending by the government is growing by leaps and bounds but to the activities of our two neighbours China and Pakistan.

  Until recently, India was the largest arms importer in the world.

  We were dependent on countries like France, Israel, US, and Russia to meet the need for critical military systems.

  None of the developed economies, the US, UK, France or China, are dependent on others for its own territorial security. It was high time for India to catch up.

  And catch up it did. India has learned the lesson that it needed to be self-reliant in the defence sector.

  A key area to watch would be the unmanned aerial vehicles (UAV) space which has be deregulated. Companies involved in the exploding drone market are the talk of the town. Drones made in India will only cost a fraction of imports and hold the potential to create high-tech jobs.

  Given the increasing focus on self-reliance, the Ministry of Defence (MoD), has set a target of doubling the defence production to US$ 25 bn by 2025. To achieve this, the MoD is focusing on boosting defence exports.

  The long-term picture here is bright. There's a massive opportunity for investors in defence space in this decade and beyond.

Conclusion

The future is exciting for India's manufacturing firms. It's even more exciting for investors in this space.

When selecting your investments pay attention to fundamentals of the companies, their long term growth prospects as well as the valuations of the stocks.

Finally, don't be in a haste. There are plenty of opportunities and there is a long runway ahead. Take your time to pick the right manufacturing stocks at the right time.

Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such. Learn more about our recommendation services here...