‘At $5 trillion, the country itself becomes an asset class and can’t be avoided anymore’

How will a $5 trillion economy change things for India?

If you look 10 or 15 years back when India’s economy touched the $1 trillion mark, it was one of the many economies that reached there. Now we are a $3.7 trillion economy and are amongst the top five. It is a given that in the next 4-5 years, we will be a $5 trillion economy. So, the country itself has become an asset class and cannot be avoided anymore. By that nature, foreigners will get indexed to the country and the foreign flow will become a lot more dependable. You can project both FPI and FDI flows with a lot more certainty. Though FPI can be a little volatile, the trend line will be upwards and more certain. Private equity investment in India used to be $30-35 billion five years back. In 2021, we got about $70-75 billion, but now the run rate is anywhere between $55-60 billion. The shift will go up and it will become $80-90 billion a year. As the economy grows and more levers are added to the economy, foreign attractiveness will continue to grow, regardless of whether our GDP is growing at 5 per cent or 6 per cent or 7 per cent. I think we are in a good period right now.

How do you see the impact of global slowdown on GDP growth?

Rising trades help us. Right now, global trade is contracting so that is not available to us…the export push is not available to us. However, we will be the only country to reach the $5 trillion mark without having the export engine firing behind us. If the global trade lifts, we can shoot between six to eight per cent. If the global trade recedes, we will be somewhere near 5-6 per cent.

In the last few years, we have seen positive levers such as quality of balance sheets, deleveraging, institutions becoming stronger and a pristine banking system. Job creation and income certainty are leading to consumption. Our real estate is in a big boom cycle. Real estate is the only sector today other than agriculture that employs unskilled workers and they can earn more than MNGREGA or daily wage. If this cycle continues for seven or eight years, I think it will create its own positive impact.

Which sectors of our economy are seeing traction?

One area where it is visible is infrastructure – railways, highways, airports. The next big piece is renewable. There are green hydrogen projects partly led by the government and partly by the private sector. There are activities in the commercial real estate and residential projects. What is not visible today is the manufacturing part, but it will take 3-5 years to show up very meaningfully. It will show up in the export data soon.

How do you see all this with respect to the mutual fund industry and for players like you?

The top 10 mutual fund players control about 80 per cent of the AUM (asset under management). It has not changed in the last 10 years. The top 10 or top 12 has changed only two or three times, as some new players came in and made a place in the top 10. So, this list doesn’t change. Second, the structure of the industry – that 80 per cent of AUM goes to the top players and everyone else fights for the 20 per cent – doesn’t change. Now, one thing which is happening is that this industry doubles every five years. So, let’s say that mutual funds put together are Rs 45 trillion (AUM) now. It is given that the industry will become Rs 90 trillion in five years from now.

In five years, Indians will be saving a trillion dollars a year. Let’s assume that the GDP is $3.75 trillion now. Of this, about 22 to 25 percent is saved which is about $750 billion dollars, and this will become $1 trillion. And then there is an inflow of new capital. So, with a very small market share also the pie can be huge. You don’t need to have 5, 7 or 10 or 15 per cent of all equity flows. You may need to have just 50 basis points or just one per cent. The round-robin thing will keep happening…people will come, try for 5 years and figure out what they want to do.