The Economic Growth of Nations

Sorry for delaying my articles all this time.....I have been consistently writing articles on my notebook during my flights, just never got the time to post them on the blog....I will try to be more organised now going forward....So going forward I will post 3 articles that I have written, I which I would post today relates to the another small step in decoding the economic growth mystery, next would be talking about a critical concept on investment fundamentals and in the third article I would continue with options trading.....I would delay the China topic for sometime ( I hope I don't have to write that article prospectivelly...), so here goes the article for today.........

Sitting on my flight to New York, I can't help but think how far has India grown (well atleast some part of the population). People essentially become rich because of wealth effect. However it does not mean that the 'income effect' is insignificant. Infact it is the rise in the income level that ends up driving the wealth effect.

15 years back a plane ticket to US was twice more expensive than what it is today around Rs 120000, however back then a good salary for an Indian used to be around 5000 pm, 15 years down the road this has multiplied 12 folds while the expenses on such items in relative terms have come down significantly. This phenomena is visible in every field. Let's take the e.g. of a Maruti 800, I remember we buying this car some 20 years back for around 52000 rupees, today this car costs around 2,00,000. A rise of just about 4 folds and compare this to the rise in paychecks.........So things are becoming cheaper relatively....Therefore the fundamental key to invest in such growth economies is to invest in areas werein in the pattern is as follows:

(1-∆price(relative))*∆growth(product) > ∆ income growth of the topmost percentile of people. The funda for such an investment decision is as follows….

Due to a high base the change in price (which is going to be negative as discussed above) is going to be lower, the change in growth is going to be higher due to a lower base ( as still a very low number of people are consuming the goods), stock/sector following this pattern would certainly outperform.

Just saying that a product or service would grow in the country is not enough because its price would inevitably depriciate vis-a-vis the income levels. So keeping this equation in mind I would say that the best investment in any gowth economy is real estate (ofcourse the flip side to this is the fact that in a slowing economy the worst sector is also real estate)

The 'price' is always a barrier to ownership. The price has to be higher preferrably much higher compared to than the current than the current income levels of the topmost percentile population. This leaves a wide scope for the prices to come down and also gives a lot of time for the prices to come down, also the service has to be prefferably more of a necessity (if not now then atleast in few years from now) this would ensure a very high growth rate.

So whenever a company says that it is moving to the villages because it sees growth there, consider that the growth story of the company is over ---- ' Get out of that stock'..........

As I discussed above that to me price is nothing but a barrier to ownership which can be really due to some tigh regulations, so any sector where such regulations are released also provide enticing opportunities for investment.....

My plane is about to land at the JFK airport but before I end this article consider this, the real estate prices in this country (atleast in the NCR area) have grown 100 times in the last 20 years!!! ofcourse there has been a currency depreciation, even if we take this account an Indian has gained over a New Yorker and now even this currency trend is changing so the gap between an Indian and an American is narrowing faster than ever before. Ofcourse keeping this thing in mind we should not forget that almost 60% of our population lives on agriculture and we desist when wheat, rice gain in prices so think about this that while some part of India is ceratinly becoming richer it is these people who are becoming poorer everyday, so keep up the economic growth momentum of this country it is imperative that we reduce the gap between these two halves of India by moving people away from agriculture or improving prodcutivity or else it is a disaster waiting to happen, time to see New York, catch you soon................