MARKET PRESENTATION INDIEN🇮🇳 (Part 1) - The better emerging market?
Hello all,
according to the last vote, the topic of India's market presentation won out over Walmart and nuclear energy. Since relatively many votes were also in favor of Walmart in the final decision, I will take up this topic on my YouTube Channel. Feel free to follow me there for analysis around dividends, markets and REITs - my latest video series is about GLADSTONE CORPORATION:
https://www.youtube.com/watch?v=UbKe6TRCj2I&list=PLvMlhIipaC_e37n8eliKkmy4lU3xvchOk
Before we start as always my disclaimer: This is not investment advice. It is also not an invitation to buy / sell financial products. I describe here only my opinion. Therefore, I also assume no liability. Investments carry risks. You have your own responsibility towards your investments
In order to have a clear structure, I suggest the following:
PART 1
India in figures, data and factsMarket basics, school education, IT boom
PART 2
- The top 3 India companies at a glance
India in facts, figures and statistics
2.05 children per woman.
Approx. 25 percent younger than 15 years.
50 percent younger than 25 years.
Figures that one could only dream of in Germany (see (1)). The average age in Germany in 2021 was 44.7 years. 19.96 million of us are under the age of 24 - that gives us just 23.99 percent of a population of 83.2 million. Our age structure is therefore just half as good in this age group. In terms of the number of children, Germany has between 1.5 and 1.7 children per woman (see (2), (3), (4)).
The truth is, however, that this immense population growth, which is expected to eclipse even China in the next three months, is not accompanied by benefits for all population groups. While in that country 61% of 60 to 64 year olds were in the workforce in 2021, in India it has already been 90% of the 60 plus generation since 2014. So the question is, what is the reason for this and what options will be available for us and India in the long run (see (4), (5), (6)).
One of the biggest costs of the German social system, namely the German pension system, is largely eliminated in relation to India. Yes read correctly - In India it is mostly not common to receive a pension from the state for a life of work. Instead, situations arise where, for example, women now also have to overcome new hurdles (cf. (7))
To understand this, one must know the 10 percent rule with respect to India. Only about 10 percent of Indians in India receive some kind of "pension-like" benefit in the form of an occupational pension or state pension. No larger proportion (see (6), (7)).
Why, then, does old-age security work?
For a long time, this old-age security functioned through the care of the elderly by the younger generation, which also benefited the older women in particular due to the loss of earnings caused by the above-mentioned average of 2 children per woman. However, this system is increasingly eroding - many younger Indians are moving away from the countryside to the metropolises because of the labor market opportunities and are then logically no longer active locally in the country. This is fundamentally problematic because the care work is left to just a few relatives and it is not possible to predict when the son or daughter will come home.
Basically, the strong trend toward urbanization in India is a relatively clear-cut case. What is happening to the detriment of smaller communities in India is strengthening the industrial metropolises such as Pune, which has been massively strengthened in particular by the automotive industry such as VW, for example. In addition to relatively simple organizational processing for external companies, most of which no longer need an Indian partner for their expansion into India, the above-mentioned population growth offers significant opportunities for not only German employers (see (1), (7), (8)).
Why is this so?
It may not be a popular opinion on my part, but education has a completely different status in India than in Germany. In India, despite greater poverty in families, it is common for them to go into massive debt, contrary to their income, and in some cases spend 25 percent of their income on their children's schooling. But this was not always the case, because the right to school for every child has only existed in India since 2012. No - not 1912. But 2012. Before that, the school system was far more restrictive in terms of admitting poorer households and was able to be more selective ((9), (10)). So is everything okay in terms of education?
Unfortunately, rather no. The driving force behind this emphasis on the importance of the school system was the fight against illiteracy and the promotion of quality education for future personnel, plus the hope of combating poverty. The whole thing is relatively interesting in that India has taken a step toward qualifying the population, but on the other hand has rather shifted the problems (see (9), (10)).
In what way?
The school system in India is the engine for assigning capable personnel to companies. So, judging from the last comments, one might think that the situation would clear up and India would become a pioneer in education. Typical stereotypes still include the Indian IT person who is in demand as a skilled worker outsourced to India at a cheap rate. This is not only wrong, but also an isolated view.
The human resource potential of India is particularly limited in that the lower class cannot participate significantly or unproblematically in this educational focus. The above-mentioned example of the indebtedness of poorer families often leads to a situation in which sons tend to be sent to school for longer periods of time, while daughters are forced to stay at home. Ultimately, this is not a feminist debate, but is due to the expectations of this culture, the lack of a welfare state in parts, and the population growth trend. Wickedly put, there may be a perception that the daughter needs to be placed somewhere and take career disadvantages because of child-rearing hours, and therefore the son is the better investment. I often found this rhetoric in various sources in modified expressions and for me this thinking is a clear result of the composition of India's pension policy (almost non-existent), wanted population drive (more potential for foreign investors) and a one-earner mentality (which is at the expense of both sexes) (see (9), (10), (11), (12)).
Why at the expense of both genders?
For explanation, I take up again the comparative rhetoric of the beginning with Germany. In the 1950s, Germany was confronted with the construction of a society in the West, and this construction followed the classical understanding of roles. The woman stayed at home for the children, the man went to work (insofar as possible after the war experiences) as the sole breadwinner. It was often the case that many men, due to their experiences as soldiers or their training there, did not directly find a highly qualified job but instead became active in the low-wage sector or working-class milieu. The husband decided whether his wife was allowed to work or not. This was the case until 1957, so that the sharing of the main responsibility for earning a living only really took off then. If one compares the mortality tables, the cigarettes and alcohol consumption of these times of men with those of the women, then a quite fast picture results which together with hard work did not affect straight positively the life expectancy of the gentlemen (see (13)). For this I wrote already times a contribution loosely to the cigarette industry and like it up-to-date disrupted is. You might also be interested in this article (see link tree).
As a consequence, men performed significantly worse than women in terms of living conditions and resulting life expectancy. Moreover, since the 1950s, women's employment has increased significantly, at least part-time (see (13), (14)). What does this have to do with India?
Plenty. Because sons are assigned the resources of daughters, girls on average receive a poorer education and will not be able to participate in higher education in India in the future. Thus, the German single-earner system is mirrored relatively directly, because daughters without education are not likely to become high earners.
Indeed, to be admitted to a highly qualified education in India, 10 years of schooling must be successfully completed PLUS 2 years, which I will call "upper secondary education" in the following. This is MINIMUM STANDARD and in detail one can educate oneself still clearly more if money is available (see (1), (13), (14)).
The comparison with our educational habits is relatively complex, because here we also have an above mentioned entitlement to go to school, but it is structured differently than in our country by its consequences.
Yes - you can go to school in India normally from 6 to 14 years.
Yes - this school attendance is then also free of charge.
Yes - you can also apply for a kind of quota at elite private schools, which have to allocate 25 percent of their places to socially disadvantaged children from corresponding families.
Yes - if your employer prevents you from sending your children to school, he may have to pay a fine and allow you to do so.
No - the degree does not take you where you are thinking of going (see (15)).
Why?
I am simplifying the Indian school system for you:
- Primary Schools (basic education) for grades 1 - 8 (you are then 14 years old).
- Secondary Schools (advanced education) for grades 9 - 12 (at graduation you are 18 years old)
Strictly speaking, there is also a subdivision into Upperprimary School (Hauptschule), the Sek. 1 schools (roughly Realschule, but with different subjects and hours) and Sek. 2 schools (which are necessary for studies). The only important thing for you is that compulsory education is only for basic education. Wickedly said, you then have the standard of the Hauptschule. Because this goes up to the 8th grade (cf. (12), (15)).
And after that?
Then you have to pay - and not too little. This leads to the fact that you can get High Quality World Top Class Super Hype education at the private school, but it becomes so expensive after the 8th grade that only the son (at best) will continue to attend the school.
Yes but that way the poor have at least a minimum standard that benefits the companies?
I initially thought the same as an investor, however a second look at the matter opened me up to the fact that the Sitzenbleiben in grades 1 to 8 has been basically abolished and you are thus virtually "pulled along". I find this highly questionable, since our school system is at least permeable downwards. This Indian system, on the other hand, goes casually according to the motto "The main thing is that he has understood something and when it becomes important, we only have middle class upwards here in the classrooms". Now this is my very nasty view and you don't have to agree with me. But keep in mind that without having understood the fractions of the 5th/6th grade, the differential calculus of the 8th grade looks like NASA knowledge.
Why should that scratch my itch as an investor?
There are essentially 3 strong reasons why this notice
- of India's population structure,
- the role of women
- the school system
- the poverty of the elderly
- the disadvantages of the short compulsory education
For an investor are indispensable.
The first reason relates to the inner core of India's economic growth. If the illiteracy rate, which was considered the highest in the category for India at the emerging market level until well into the 2000s and 2010s, is not addressed - what exactly is coming after it, so to speak? Skilled engineers and computer scientists who can't read their own language? A doctor who has to have his reports read to him by the nurse?
That was a bit of an exaggeration, because corresponding illiterates leave school at an early age and are more likely to be found in the area of simpler work. This is not particularly complicated either - if you could not read German - could you then criticize my text here or participate in qualified discussion? No.
Yes, but I'm sure it only affects a few people, right? The government's initiative must have worked, right?
Jain with focus rather slowly. A source from Statista gives us information on this and proves that the ALPHABETISATION GRADE (i.e. at least the ability to read and, if necessary, write) in India has risen from 40.76% to 74.37% overall. In the period from 1981 to 2018.
Can the government of the day pat itself on the back now?
Yes with half a hand. After all, if we look in detail at what really happened after the measure was introduced, we see growth on a smaller scale than we thought. From 2006 to 2015, the number of alphabets increased to about 70%. From the original 62.75%. That's about 9 years for about a 7 percent increase. Since no common figure has been drawn for 2015, there is a dark field here. However, the figures for women and men imply a steady trend at about 70% (see (15), (16)).
The bottom line is that India needs skilled men and women to continue to expand. Various sources in the 2010s already feared a glut of unqualified young people in unemployment. This would have meant that with rising unemployment, relatively paradoxically, many jobs for growth could not have been filled (cf. ibid.).
To this day, India has a massive problem with this illiteracy-high school graduation paradox. Therefore, I consider this point to be very weighty.
The second reason essentially consists of the connotation between increasing demands in the IT sector and a secondary school leaving certificate that does little to no work towards this booming industry in India. Source (17) provides an example of a provider of these IT outsourcing solutions that offers IT services from India in the age of remote work. Source (18) even goes so far as to state the following:
"Today India is (..) the world capital for ITO".
ITO stands for Information Technology Outsourcing and sees the focus of India's labor market in the IT sector in particular. The only problem is: Every year, 13 million Indians graduate from high school in India. 3.5 million Indians can look forward to access to an apprenticeship or university place.
And the rest?
Despite the booming IT sector, they may not end up in suitable professions or often have to abandon their school careers. In addition, most schools (18) and (19) do not have the equipment, cleanliness, class size or teacher training. This in itself leads to a lack of access to the above-mentioned sector (see (18), (19)).
Yes, but then can I as an investor profit from the trend toward outsourcing?
The third reason responds precisely to this delusion that you can simply outsource your complicated IT problems and no longer have to deal with expensive IT staff, a shortage of skilled workers and high taxes if you outsource.
This ITO trend is no guarantee that the India "business model" will work. Any simple research will quickly show that outsourcing may create additional problems. Cultural differences often make goal-oriented or problem-oriented communication difficult and a "No Problem Sir", as stated by the source (20), although everything is burning and one is basically unaware of the solution to the problem, often leads to disappointment (cf. (20)).
The silent post principle is also problematic in Indian culture, as communication often takes place with a senior manager, who then passes on the task to his team leaders. The team leaders, in turn, interpret the task to the developers and so it virtually goes back up the ladder, so that the customer receives a black donkey instead of a blue tiger (cf. ibid.).
In addition, the range of ITO services is often very confusing and leads many founders to fixate purely on price. This tends to be just as critical, since the ideas to be provided are often also linked to this. If you pay Fiat, you don't get BMW (see (19), (20)).
Result
We have now learned a few things about the cultural characteristics of India as an investment opportunity and have taken insights into population structure, old-age poverty, state security, gender equality, the role of family poverty in education, the relatively unsuccessful attempt of the policy of allowing poorer families to participate in the IT boom via secondary school graduation, the IT boom itself, the literacy rate, the ITO boom and finally the top 3 reasons for the relevance of this article.
This was part 1 on India as an investment market. With proper feedback, I will also write a part 2 on India's stock market.
I hope you enjoyed this part.
Are you invested in India isolated? How do you see the coupling of school system - labor market - economic performance? Have you had any experience with outsourcing to India?
Feel free to write it in the comments! :)
If you feel more like dividend stocks after this very market-heavy post, feel free to check out my REIT playlist on GLADSTONE COMMERCIAL, LAND and INVESTMENT by!
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Sources
(7) https://www.dw.com/de/indiens-rentner-immer-mehr-im-abseits/a-5604927
(9) "Imagining India," Nandan Nilekani, Penguin Books, 2009, page 207.
(11) https://blog.pasch-net.de/klick/archives/854-Das-Schulsystem-in-Indien.html
(12) https://indienheute.de/wie-gut-ist-das-schulsystem-in-indien/
(16) https://de.statista.com/statistik/daten/studie/170863/umfrage/alphabetisierung-in-indien/
(17) https://www.outsource2india.com/india/bpo-industry-india.asp#
(19) https://www.bpb.de/themen/asien/indien/44534/expansion-qualitaet-gerechtigkeit/
(20) https://www.businessinsider.de/gruenderszene/allgemein/outsourcing-indien-tipps/
