What A Momo Chain Suggests About India's Growth Ahead — ValueQuest's Take

India's growth is set to accelerate on the back of consumption and manufacturing, making the nation a $10-trillion economy in the next decade, according to Ravi Dharamshi of ValueQuest.

An inflection point is the birth of a new paradigm at the confluence of cost curves, capability curves, and learning curves, Dharamshi, chief investing officer at ValueQuest Investment Advisiors, told BQ Prime's Niraj Shah. For example, he said, the creation of smartphones in 2007 from different parts of technology that already existed, like LCD displays and data sensors, was a turning point in technology at the time.

India took 67 years to become a trillion-dollar economy, eight years to add another trillion, and less than five years to become a three-trillion-dollar economy, he said. Therefore, the gradual acceleration of the economy at the rate of a trillion-dollar increase every two years hints at India turning into a $10-trillion economy in the next decade or so, he said.

This faster growth can be attributed to infrastructural developments across digital spaces, roads, transport, energy, and more, Dharamshi said.

On the possibilities of a J-curve growth in consumption, Dharamshi said that the nature of such a recovery is such that it is slow, time consuming, and sceptical in the beginning.

However, some of the cities, such as Bengaluru and Mumbai, have already started picking up in terms of their per capita income, he said. Having said that, it's not just the metropolitan cities; even the two-tier and three-tier cities are also experiencing growth in consumption, Dharamshi said. For instance, a rise in online jewelry purchases is seen in some parts of the northeast region of the country, he said.

The long-term growth trend is unquestionable; as income grows, discretionary consumption will follow suit with a rise in expenditure on healthcare, education, and entertainment. This will lead to a better quality of life, according to Dharamshi.

The kind of growth that "Wow! Momo", the first homegrown company in the MNC-dominating quick service restaurant, or QSR, chain, has achieved with 570 outlets is inspiring, Dharamsahi said, citing the company as an example of J-curve growth.

Standardisation and sustainability are the pillars behind the company's retail roll-out, he said. It is a good time to bet on QSR chains both in the listed and the unlisted space, as these companies are reaching a scale of 300 to 500 outlets and are capable enough to expand further based on their own cash flows, he said.

Dharamsahi expects a growth contribution of 6% to 8% from same-store sales, 15% from store expansion, and 3% to 5% from increases in price and valuation.

Considering India's large geography, the eating habits, and the population density, there is demand and space for more outlets per square kilometer to serve a similar demography, he said. "Therefore, the consumption space is a sector that looks positive in terms of growth rate from a long-term perspective.".

India's manufacturing sector's share of the GDP has always been small, at less than 10%, according to Dharamshi. However, the landscape is now changing with a focus on domestic manufacturing by limiting imports and developing infrastructure across diverse fields such as defense, transport, digital, and much more, he said.

Adding to this, there is intent and motive on the part of global customers who want to diversify away from China at a time when India is aiming to shift from agriculture to manufacturing, he said. Therefore, at present, India appears to be a lucrative alternate option to China on the global stage. Hence, it's imperative for India to pick up its manufacturing space, he said.

"Defence, electronics, and railways are the most opportunistic spaces under manufacturing," Dharamshi said.