Dear Reader,
Credit Suisse has for the last decade brought out a Global Wealth Databook, which estimates the total wealth of nations, how it is divided, how many millionaires and billionaires we have and other such data. This year’s edition tells us that the richest 1 percent of Indians own 40.5 percent of the nation’s wealth, the top 5 percent own 61.7 per cent and the top 10 percent have 72.5 percent. Putting it differently, the top 5 percent own more than the other 95 percent combined.
Where do you stand on the rich list? Credit Suisse has helpfully told us what it takes to get on it. It estimates that the minimum wealth for an adult to be part of the richest 1 per cent in India is $ 150,902. At current rates of around Rs 74.5 to a dollar, that would be around Rs 1.12 crore. Note that this is wealth per adult and not per household.
To be in the top 5 percent, your minimum wealth should be $ 45,909, while you require a minimum of $ 22,476 to be among the richest 10 percent of Indian adults. In rupee terms, you should have just Rs 16.74 lakh to be in the top 10 percent. That sounds ridiculously low, but then median wealth per adult in India in 2020, according to Credit Suisse, was a paltry $ 3,194, or Rs 2.38 lakh.
What would it take to be among the richest 1 percent of adults in the world? That would call for a minimum of $ 1,055,388, or Rs 7.86 crore. If you have assets worth at least $ 278,520, you would be among the richest 5 percent in the world and at $ 129,624, you would be among the world’s richest tenth.
What about China, an economy we like to compare ourselves with? The top 1 percent there own 30.6 percent of the country’s wealth, low by Indian standards. Median wealth per adult in China, at $ 24,067 is much higher than India’s. The economists Piketty and Chancel had, in their paper titled ‘From British Raj to Billionaire Raj?’ found that, between 1980 and 2015, the bottom 90 percent in India were able to capture only 33.7 percent of the fruits of growth over the period, while the top 1 percent captured 29.4 percent. For China, the corresponding figures were 56.7 percent and 14.9 percent respectively. That is one reason why China has a much bigger ‘middle class’ than India.
India is a very unequal society, with a wealth Gini coefficient of 82.3. A Gini reading of 100 denotes perfect inequality while one of 0 indicates perfect equality. But there are several other countries, such as Brazil, the US, Russia, South Africa, the Philippines, and Saudi Arabia that have more wealth inequality.
The global increase in inequality has several effects—it has limited the size of the market, while simultaneously increasing savings. It has led to lower interest rates and higher asset prices.
Those high asset prices were on full display in India during the week, thanks to Zomato’s sizzling debut. As Aswath Damodaran said, it’s “a joint wager on a company, a sector and a country”. It’s a measure of confidence in the India story.
But there’s more to it than that. The huge premium on listing raises interesting questions about the impact on valuations when the stock is made accessible to a wider — and perhaps less knowledgeable — pool of investors. Zomato’s scarcity value as the only food delivery tech platform available in Indian public markets undoubtedly added to the demand. And of course, its high-priced stock can now be used as currency for acquisitions. Here’s an old piece on how food delivery companies have performed overseas.
Another platform that made waves recently was Reliance Retail which snapped up Just Dial. And with the Paytm and Mobikwik IPOs in line, we looked at the dangers to traditional banking models from fintech.
The contrast between New Economy/Old Economy valuations is stark and there’s plenty of irony in Asian Paints’ $ 40 billion valuation raising eyebrows, given Zomato’s market cap. HDFC Bank’s earnings miss raised questions on whether its golden era is over. More in tune with the times is our take on Jubilant FoodWorks, where we said its high valuations are par for the course. The worry, of course, is that stocks priced to perfection may not live up their high expectations, as was the case for Hindustan Unilever, although we continue to be cautiously optimistic. We considered what it will take to reverse the under-performance of FMCG stocks. Unfortunately, our Monsoon Watch shows the patchy progress of the rains is weighing on kharif sowing, although the recent showers should help.
A K-shaped recovery is seen also in the impact of the pandemic on companies. An RBI study found big companies have gained market share. Employees in bigger companies got higher raises than those in smaller firms.
The June quarter results are coming in thick and fast. During the week, we analysed the results of L&T Infotech and HCL Tech, UltraTech and ACC, CSB Bank and Bajaj Finance. The June quarter bore the brunt of the second COVID-19 wave, so its corporate results would not be representative of the recovery that is shaping up. The other results we looked at include HDFC AMC, Bajaj Auto, Shyam Metalics and Energy and Gland Pharma. We took a deep dive into Rossari Biotech’s latest acquisition and did a check on the roads sector. And we considered whether Glenmark Life Sciences could replicate Divi’s Labs’ success.
Confidence in the recovery will increase once we have achieved herd immunity. The latest findings of the ICMR sero survey show that two-thirds of Indians above the age of six have COVID-19 antibodies. Does that mean we have attained herd immunity? Our herd immunity tracker points out that we are way behind our vaccination targets.
We continued looking at the implications of building a sustainable economy under The Green Pivot series. Crisil COO Amish Mehta told us in this interview that over time ESG scores will be taken into account in their evaluation of companies. NTPC, incidentally, is doing a makeover into green energy.
Last, there’s another important reason for the thumping success of the Zomato listing. Regardless of whether they agree with its valuation, fund managers know well Keynes’ dictum: ‘It is the long?term investor — he who most promotes the public interest — who will in practice come under the greatest criticism whenever investment funds are managed by committees or boards or banks. For, it is the essence of his behaviour that he should appear eccentric, unconventional and rash in the eyes of average opinion. If he is successful, that will only confirm his rashness; and if in the short run he is unsuccessful, which is very likely, he will not receive much mercy. Worldly wisdom teaches that it is better for one’s reputation to fail conventionally than to succeed unconventionally.’
Cheers,
Manas Chakravarty
