To do this for India alone, here is how the operating macro environment is tangibly different in 2020 from what it was till 2014 -
Increased push towards financial savings as opposed to physical savings. The period of 2002-2013 was one of people loading up on real estate and gold. Starting 2015 the proportion of household savings coming into financial savings has been steadily increasing. Some data here - HDFC Asset Management Company - #246 by zygo23554
People coming to terms with the fact that the high interest regime maybe a thing of the past One of the things Rajan as the RBI Guv starting talking about after assuming office in 2013 was breaking the back of the inflation expectations narrative. He wanted not just lower inflation but also lower expectations of inflation going forward. Though we have a different RBI Guv today, what Rajan wanted to do has more or less been achieved due to a combination of factors. One can no longer park money in a bank FD and expect to make 8% per annum. Lower rates means lower cost of capital for anyone who is credit worthy
Greater fiscal prudence, more resilient INR and better trade balance The first thing NDA II addressed was fiscal prudence and changing the mix of the Govt spending. The oil crash of 2014 which brought the price down from USD 100 per barrel to USD 60 per barrel was a game changer, as was the fall in gold prices from 2012 onward. End result was better fiscal situation, better trade balance situation and a resilient INR after the 2013 taper tantrum, FX reserves up from USD 280 Bn in 2014 to the current level of USD 475 Bn. Over the past few years the noise has been around an overvalued INR and not the other way around though the USD INR pair at 76 looks way weaker than what reality is
The older employment engines slowing down The mix of employment today is far more different than it was in 2010. Salary growth for the average employee has moderated from double digits to the range of 7-9% per annum. This also works in tandem with point 1 above on financial savings, at high asset prices and lower salary growth/lower visibility on career longevity employees are much more cautious today than they were in 2010
The decade of low Gross Fixed Capital Formation GFCF as a % of GDP was 34% in 2010, since then the number has only trended lower and lower. Private Capex has pretty much seen a lost decade since ROE on business was lower than the 10 year G-Sec yield through the early part of the decade. We have seen the effect of this on industrials and capital goods where things have gone nowhere through the decade. Corporate lenders Vs Retail lenders pretty much sums up the picture too. However, private capex still looks like a mirage
Domestic Consumption becoming the torch bearer of the Indian economy With exports to GDP ratio shrinking from 25% in 2014 to 19% in 2019 (lowest since 2006), the consumption economy became the poster boy of the stock market. See here - India - Exports Of Goods And Services (% Of GDP) - 2024 Data 2025 Forecast 1960-2022 Historical. What changed after 2014? Lower growth of IT and Pharma revenues - two sectors which were incidentally very good employment generators too. No wonder consumer businesses became the most highly valued ones in the Indian stock market
The start stop nature of the economy and the market The period 2003-08 was an anomaly in all ways. We had all engines firing well together - exports, domestic consumption & capex spend, no wonder the growth in EPS averaged 20% per annum during the period. The period post that has been a start stop market where the beast of secular earnings expansion just hasn’t materialized for a long enough period. We have at best had 2-3 segments firing well with the rest lagging big time. In terms of market cycles, we have moved to smaller 5 year cycles where you have 2 bad years, 1-2 average years and one good year.
Given that this is the operating environment today, who stands to benefit/lose in the next decade (not an exhaustive list)?
Clear Beneficiaries
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Financialization players - They already have the scale, don’t need incremental capital and will get greater access to the household savings pool which can make multi year growth a reality
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Manufacturing companies in India that can make for the world - Lower employee and compliance costs in India combined with a weak rupee can do wonders for these, especially those that are into process manufacturing and have minimal dependence on large scale labour. Need someone to finance your 1000 Cr capex? A bank is more than happy to lend at repo rate + 200 bps since they can mop up retail float at less than 6%. The better ones can borrow in international markets and not worry about an FX blowup since they have a natural hedge in the form of exports.
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Consumer Discretionary/Goods/Staples - This economy might continue to grow well given the demographics and aspirational nature of the junta, however the call here is to see if the valuation justifies the growth or not
Negative for -
Real estate, especially residential - Pretty evident if you have read this far
Housing Finance Lenders - Follows from the above
Not an easy exercise, so will need to build over time.