We are about to welcome the New
Year and it promises to be a great year. Few recent developments that make me
so sure that it would be a great year are:
1. We have the best elected government
India has even seen. The government has clear majority in the Lok Sabha
and has the Guts to walk the talk. Although lack of majority in Rajya Sabha is
an irritant but recent decision of going ahead with reforms via ordinance route
shows that reforms are inevitable. Mr. Modi as a leader inspires lot of
confidence not only because he has vision and experience but also because he
has the guts to fight the battle even if he is alone.
2. Crude prices have crashed by 50% in the
last six months: India’s biggest challenge has been import bill due to
high cost of energy. Although many people believe it’s a temporary blip, I believe
it’s a sustainable trend due to following:
a.
USA, the biggest consumer of energy, which used
to be net importer of energy has now become net exporter
b.
Shale gas technology has substantially increased
the total pool of energy available in the world
c.
Lot of investment has happened in renewable like
Wind and Solar in the last decade
d.
China has been aggressively investing in the last
decade and hence guzzling lot of energy,
with marginal utility of investment falling and China looking to consolidate they
would no more go ahead and acquire energy aggressively
e.
Many new geographies have started producing
energy including Australia, Canada, Africa etc. This makes OPEC irrelevant and
reduces their price determination power substantially. It’s in OPEC’s interest
to let the price fall so that investments in new Oil & Gas projects become unviable
f.
Alternative like Natural Gas were already prices
at around $4 / mmbtu in US and Canada region which was a clear indicator that
oil prices had to correct
For importing country
like India Lower energy prices is very good news. Not only it controls the
foreign exchange outgo it makes manufacturing in India more competitive. It
also reduces the subsidy bill of the government which means more room for
policy reforms for the government.
3. Property price in the country is coming
down: Rising property prices in India during the last decade has been
double whammy. First, it made it very difficult for a new business to take real
estate at market price and still remain competitive. Secondly, the rate or
return in real estate was so high that real estate investment made more sense
than any other investment and hence real estate sector soaked up most of the
savings in the country. Falling real estate prices would mean that savings of
the country would be put to better use.
4. Commodity prices are falling, leading to
fall in inflation: Like real estate and Crude, commodity prices are
also falling. Steel, Cement, Coal all are seeing downward trend. Rising
commodity prices makes the rich richer and poor poorer. On the other hand
falling commodity prices has the reverse effect. Companies like Adani, GVK, OIL
etc who went out and bought mines across the globe are suddenly stuck with very
high cost assets on the other hand inflation in the country is falling to near
zero due to falling prices.
But one thing that makes me most
optimistic about things going forward is the start of start-up culture in
India. The role models of the country are changing. Today nobody names Reliance,
Tata or Birla as Role Model Company or Dream Company. Today Role Model
companies are Google, Facebook, Flipkart, Housing.com.
A countries future is determined
by the aspirations of its youngsters. There was a time in 1970s and 80s when
Doctor, Engineer and IAS were the ultimate aspiration of the nation. In late
90s it was software engineers and in the last decade it was investment banking.
But we can see a tectonic shift in the
aspirations of the youngsters of the nation. It is visible not only at campuses
in the country but also in what is making headline in newspapers today. This generation is connected by internet with
the world and is not limited to Indian role models for aspirations. This
generation does not believe anything imported is good, but willing to compete
with the best and biggest in the world.
The new generation is not willing
to work for anybody else but wants to create their own start-up and dream of
making it as big as Google, Facebook or Flipkart one day. We all can debate how
realistic valuations are and whether there is bubble in ecommerce space, but
aspirations of a generation is not decided on excel sheets.
Suddenly the nation has
everything going for it. It has a leader with a vision and guts to walk the
talk. The world environment is conspiring in its favour with falling energy
& commodity prices and lot of investments waiting to invest in compelling
opportunities, But above all a generation which believes in itself and with UNLIMITED
GUTS. This Unlimited Guts of this generation makes me confident that not only
the next year, the next decade belongs to India.
