From an early age we were always told something about our country as if it were a hard fact: India is an overpopulated country.
We were told that if the Indian people were not brought under control, there would be serious economic and social problems.
And for much of India’s history as an independent country, this seemed to be true.
In the 1960s, India became self-sufficient in food production. The government also began to focus on reducing infant mortality.
This meant that the population growth of India increased. In the late 1960s and early 1970s this was 2% per year. India was already quite populated at that time. Rapid growth on top of a large base meant that the population would increase exponentially.
This was indeed a very serious concern and explains the government’s obsession, over the past decades, with the idea of controlling population growth.
I’m sure we all remember the Indian government’s symbol for its family planning program – the inverted red triangle.
Policies were attempted to ‘discourage’ large families. TV ads bombarded us with the idea that a small family is a happy family.
The scary term “population explosion” was taught to children in schools to warn them of the dangers of this type of growth.
And in the 1970s, during the state of emergency, the government went too far with its sterilization program.
It didn’t matter which party was in power. The focus was always the same: getting the population under control.
In fact, you could say that the Indian government and several state governments have done everything possible to promote family planning, except for imposing a Chinese-style one-child policy on citizens.
What does the data say?
In November 2021, the results of the latest round of the National Family Health Survey were made public. And the results were certainly eye-openers.
The biggest take away is this one: There is no population explosion in India.
According to the data, India’s ‘replacement rate’ has fallen below the level needed to sustain the population.
The replacement is the rate at which the population can replace itself from one generation to the next.
The fertility rate is the number of children a woman is likely to have. The fertility rate of 2.1 is called the “replacement rate.”
In 2021 India’s total fertility rate fell to 2.0.
In most states, the number is even lower than 2. What is even more surprising is the number in urban India: 1.6. This is the same as the fertility rate in the US.
This may be hard to believe, but for families living in the cities of India, fertility is the same as in developed countries.
In urban India, couples do not have more than 2 children. Many have only one. And a growing number have none.
All of this means that India’s population will peak at about 1.6 billion by 2060 much earlier than anyone expected.
The population of India today is nearly 1.4 billion. So the data has made it clear that population growth will be slow over the next four decades. In fact, the price will continue to fall until it reaches zero around the year 2060.
Then the population growth becomes negative.
That’s right. In four decades, India’s population will peak and begin to decline.
Remember that the replacement rate is 2.1. The fertility rate in India has already fallen below that. This means that the Indian population, once it has reached its peak, cannot replace itself. It will decrease.
This is not a matter of opinion. It is a mathematical certainty.
What’s more, if this trend continues, the data says the population will drop to one billion by 2100.
All this would have been incredible at the turn of the century. Around that time, India’s billionth baby was born.
No one would have believed in 2000 that in 100 years India’s population would have peaked and fallen to one billion. The idea alone would have made you laugh.
But now we know that this is exactly what will happen.
What does this mean for investors?
In the stock markets, everything revolves around the future.
Warren Buffett once said: “If the past were all it takes to play the money game, the richest people would be librarians.”
The stock market takes information about the future into account in today’s stock prices.
This is a continuous process. It happens every day, all the time.
When investors are positive about a company’s future, the stock price goes up. If not, the price will go down. This is because investors buy stocks to take advantage of the profits in the future.
So if investors think the future will be bad, or not as good as it is now, they will sell their shares.
This is scholarship 101.
Now profit is a function of sales. A company’s net profit is simply its sales multiplied by its net profit margin.
Net profit can be increased to some extent by improving net margin. This can be done by reducing costs in relation to turnover. But at the end of the day, for profits to rise, sales have to rise.
Now sales are just the number of units (product or service) sold multiplied by the unit price.
If a company sells 100 units of its product at Rs 10 each, it will achieve Rs 1,000 in sales. Simple enough.
The company can raise the sales price up to a certain point to increase sales. But it can’t go any further.
Thus, sales are directly related to the number of units sold. That means that the profit is also directly related to the number of units sold.
And this means that the company’s stock price is also directly related to the number of units sold.
Long-term investors are very sensitive to this.
If they think that a company is likely to sell less of its products in the future, its inventory will fall.
Just look at Castrol’s long-term chart. How many units of motor oil will Castrol sell in a future where EVs will rule the roads?
And that brings us to the all-important point of population growth.
India will not have as many people as we expected. Population growth will also be very slow.
And around 2060 it will even become negative.
In fact, the Indian population will get much older before that point comes.
An aging population is nowhere to spend money as quickly as a young population. This is what is happening in China right now. This will also be in the future of India.
Another point for attention is the shift in spending pattern. As a long-term investor, you need to take this into account.
Companies will not sell as much as their managers think. Their net profit will not be as high as they expected. Their growth rate will fall short of expectations.
The impact will be felt on share prices. There are two ways to look at this shift in spending patterns.
You could start by studying companies that cater to this population that is smaller and older than expected.
Second, look for stocks that fit both segments. For example, a good real estate company focuses on both the young and the aging segment. It can develop both budget homes and holiday homes for the two segments.
There are many other ways to capitalize on this trend. We’ll discuss those money making ideas in a sequel.
Now this will not be a big theme in the 2020s as the Indian population will remain young in the near term.
But if you’re investing in stocks for your pension fund, which is at least 15 years or more in the future…
… this is a ‘population problem’ that you should be aware of.
Be prepared for the day when the stock market wakes up and gives this trend the necessary importance. That day may not be far in the future.
(This article is from Equitymaster.com)
(This story was not edited by DailyExpertNews staff and was generated automatically from a syndicated feed.)