Manager Spotlight
Indian Equity
Sanjiv Duggal
Investment Director, Indian Equities
HSBC Global Asset Management (Singapore) Limited
Q: What is the other growth driver of India?
Q: We have heard time and again that India has
strong demographics that will provide the growth
story, but exactly what does this mean and how
strong are India’s demographics compared to other
countries?
A: We believe that falling dependency ratio will herald
the golden era of economies.
GDP
Dependency ratios are the number of dependents as a
percentage of the country’s working age population.
A: A young population – under 25 years – accounts for
about 50% of India’s total populace (see Chart 1).
Furthermore, India is expected to register the largest
addition to the working age population (15 to 64 years) in
the world by 2020. Meanwhile, labour costs, as a
percentage of value add, are among the lowest when
compared with Asian companies.
Historical data shows that when a dependency ratio of a
country starts to decline towards the 40s, the country is
likely to enter a golden era of economic power. This can
be seen from Table 2 on the next page. The explanation
is simple: productivity increases with a larger working
population, and when coupled with declining number of
dependencies, it results in a higher disposable income.
India is expected to be the largest supplier of postsecondary graduates in the world by 2020, according to
an estimate by Morgan Stanley Research. The pool of
post-secondary-educated workforce will balloon from 56
million in 2010 to 114 million by 2020, the study
estimates. These favourable demographics will spur
consumption and economic growth for years to come.
This, in turn, spurs economic growth and this growth can
persist for decades.
With this trend in mind, it is evident that India’s golden
era has just started and will likely continue for the next
two decades at the very least. India’s GDP growth in
2011 has already reached 7.2%, and in the forthcoming
decade we expect its nominal GDP to triple*. We believe
this journey will throw up many attractive opportunities in
the equity market.
It is quite clear that India’s increasing young, working
population will continue for decades – a notable contrast
when compared with the maturing demographic profile of
the other economic superpower.
*Source: IMF World Economic Outlook, April 2012.
Chart 1: Demographic profiles of India and China
China2010
2010
China
India
2010
India
2010
80+
80+
70-74
70-74
60-64
60-64
50-54
50-54
40-44
40-44
30-34
30-34
20-24
20-24
10-14
10-14
0-4
80,000
0-4
60,000
40,000
20,000
Male
0
Female
20,000
40,000
60,000
80,000
In thousands
Source: UN, Credit Suisse Demographics Research, 1 November 2012.
80,000
60,000
40,000
20,000
Male
0
Female
20,000
40,000
60,000
In thousands
80,000
Table 2: Falling dependency ratio heralds the golden age of economies
Time Period When GDP Growth
Was Consistently Above 8%
(Golden Eras)
Falling dependency
ratio
Number of Years
China
1981 – 2011
66% to 38%
30
Korea
1966 – 1997
86% to 40%
31
Japan
1950 – 1973
68% to 47%
23
Singapore
1967 – 1997
80% to 40%
30
2005 - Present
59% to 54%
6 and counting
Country
India
Source: Morgan Stanley Research, 31 October 2012. Based on GDP 10-year trailing average growth rate.
Chart 3: India’s gold era has started
Projected
85%
80
70
60
75%
50
40
65%
30
20
55%
10
45%
0
1950
1960
1970
1980
1990
2000
2010
2020E
2030E
2040E
2050E
Additions to India's Working Age Population (mn) - RS
India's Dependency Ratio (%) - LS
Source: CEIC, World Bank, UN Population Database (2010 Revision), Morgan Stanley Research. 31 October 2012. Projections are indicative only
and not to be relied upon.
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