Expertspeak: Brands, finance companies will prosper

India is on the cusp of a new growth trajectory and our economy is expected to grow manifold from current levels. Indian investors can benefit most if they concentrate on the two emerging trends: quantum jump in financial savings and increasing brand consciousness among people. India’s current GDP is $2 trillion and our historical average nominal growth rate is in the range of 13%-15%.

Assuming that our nominal GDP will grow at a modest 10% in the next five years, the GDP will be $2.2 trillion in 2016, $2.4 trillion in 2017, and so on. Adding the GDP numbers, the total value in the next five years comes to $12 trillion. If we assume a modest 20% savings rate, the savings in the next five years will be $2.4 trillion. Since an increased proportion of this $2.4 trillion savings will be coming to financial assets, there will be a quantum jump in all sectors related to finance, and companies in this sector will be the big gainers.

It will include banks, NFBCs, asset management companies, insurance companies, wealth management companies, and other financial intermediaries. The shift from unbranded products to branded products is the next big trend. Indians are gradually getting brand conscious. Everyone now wants to use branded products, be it soaps, shirts, watches, shoes or inner wears. This shift stands to help companies with strong brands. For example, of the 130 crore people in India, almost half are males and, if we assume that they buy one extra shirt per annum, it will be 65 crore additional shirts.

At an average cost of Rs 800, this works out to be more than Rs 50,000 crore in sales. The current size of India’s biggest shirt brand, Van Heusen, is just Rs 1,200 crore. So, if we get our acts together, sky is the limit for Indian brands. Please note that the $70 billion Zara brand is from Spain, a country with a population of less than five crore. To benefit from the emerging shift-tobrands theme, investors need to concentrate on companies with existing strong brands or those in the process of establishing new brands.