India’s Population Story Is Changing and Investors Need to Pay Attention Saurabh x Nandita

Coffee and Investing with Saurabh Mukherjea

The episode examines the fundamental shift in India's demographic landscape, arguing that the era of a 'young India' driving mass consumptio

Key takeaways

• India's national fertility rate has dropped from 3.3 to 1.9, falling below the replacement level of 2.1.
• In states like Delhi, Kerala, and Tamil Nadu, fertility rates have plummeted to levels as low as 1.2 or 1.3.

Main topics

• Indian Demographic Shifts
• Fertility Rate Decline

Notable quotes

The story is already over.

Conclusion

Investors should move away from mass-market consumption stocks and rea

Transcript preview

Speaker 1 (0:00) So demographic difference in terms of demographics driving EPS growth, demographics driving consumption growth, profit growth, that story is over. Both at the population level and 100 % at the affluent start-up society level. In August, men and women are getting Speaker 2 (0:15) married in Speaker 1 (0:15) their early 30s. Speaker 2 (0:17) Earlier Speaker 1 (0:17) it was mid-20s. So it was mid-20s around 1990, now it's early 50s. Speaker 2 (0:23) So Speaker 1 (0:23) the rates are down, ages are up. As women marry later, and as the share of men and women who are never marrying by the age of 30 is rising, it immediately drags down population growth. The remaining 75 years of the century, Speaker 2 (0:36) we Speaker 1 (0:37) will completely wipe out the gap between us. For those who don't know, in India, 50,000 government schools are closed annually. So, your mental model is very much in the open, growing, but the story is already over. This structure will almost certainly mean, the fact that India's population has already started to shrink, will almost certainly mean that we will grow old as a country long before we get rich. Speaker 2 (1:04) The one sentence that has been used to repeatedly pitch Indian equities to the world for the last 25 years has been that India has a young population. But Saurabh argues that that sentence has stopped being true. And the person most impacted by it is not the demographer, but the Indian investor who has built a portfolio on it. Saurabh, can you explain what's happening now? Speaker 1 (1:26) So, look, I mean... the Indian investment industry, as you said, keeps pitching to clients that we are young, demographic dependent, we have a very young population. At one level, superficially, it looks very true, right? But if you think of an investor, think of someone in their 30s and 40s, whether they're living in India or outside, it doesn't matter. If such a person is buying an Indian consumption stock, thinking that there are very young people, that will drive volume growth, Speaker 2 (1:52) that Speaker 1 (1:53) story, I think, is... is now over, right? Effectively what's happened in our country, in the affluent strata of society, and there's plenty of data, folks, we'll discuss the data over the next 20 minutes, in the middle class strata of Indian society, population is already shrinking. For the country as a whole, for the country as a whole, population is already shrinking, we are below replacement rate. I have very little doubt that the forthcoming census will show that the population is down significantly. So demographic difference in terms of Demographics driving EPS growth, demographics driving consumption growth, profit growth, that story is over, both at the population level and 100 % at the affluent start-up society level. Speaker 2 (2:34) So this Speaker 1 (2:34) mental updating of the investment industry has not happened. I think it should happen because it has a big impact on the investment portfolio. Speaker 2 (2:41) Right, so effectively, the question, I want to just frame it before we move forward, is that what happens to my portfolio? basis, the kind of presumption that we were running with that the Indian population growth has been steady and that stops being true, right? Yes, exactly. Speaker 1 (2:56) So, a large slice of the earnings growth that India got till say around 2015 was because of population growth. In the last several years, population is no longer growing and in the affluent start of society, there's plenty of evidence that population is actually shrinking, i.e. fertility rate is below. replacement rate which means earnings growth has to be revisited which means for most people watching the equity portfolio has to be revisited from the bottom up. Speaker 2 (3:22) Right, so before we get into that I just wanted to also espouse this one thing that you have mentioned that marriages are not happening anymore in the country or not at the scale at which we used to see. Speaker 1 (3:32) Some people are getting married but in the affluent start-up society we'll show you the data both marriage rates are down. Why is it Speaker 2 (3:39) that? Speaker 1 (3:39) So let's go into the theory. Theory was not made in our country. It was made in the West. Somewhere in the 60s, 70s, fertility rates started falling. Marriage rates started falling in the 80s, 90s. So Gary Becker from the University of Chicago got the Nobel Prize for Sanyalik. So Gary Becker said about 50 years ago that the household is like a firm. So people watching don't laugh, but he said think of a couple. They're like a firm. Each has a specialization. So one part of the in a couple, one person could specialize in going into the job market and earning money. Speaker 2 (4:14) The Speaker 1 (4:14) other specializes at staying at home and looking after the house. Both have specializations and using trade theory, he said by each person specializing in what they do best, the household is better off together than apart. So this was the Belker theory. The model suggested that opposites would attract. If someone likes to invest in the stock market, the other person It's good to run a household. Opposites attract and complementarities are enormous in people of opposite sides getting married. By the way, Becker was not sexist. He did not say that the woman has to stay at home. And only the man can go out and Speaker 2 (4:53) marry. Speaker 1 (4:53) That was going to be my next question. Becker didn't say that. You Speaker 2 (4:56) can Speaker 1 (4:56) read Speaker 2 (4:57) that Speaker 1 (4:57) later. But the Becker theory suggested that the marriage is like a small firm being created. So, for the third year, Becker's theory went on. In 2007, two other American economists, Stevenson and Wolfers, Stevenson and Wolfers said that the theory Speaker 2 (5:14) of the Speaker 1 (5:14) Becker theory is wrong. They said in the modern day and age, technology has collapsed the cost of running the house. So, for example, if you want to Speaker 2 (5:22) make Speaker 1 (5:22) roast in Speaker 2 (5:23) the evening, Speaker 1 (5:23) you don't have to sit for three hours and dress up the vegetables or the chicken and stick it in the oven and read a magazine and all that. You just call in Suki Zomato and Uber Eats. Speaker 1 (5:38) So all that domestic chores and domestic production slowly doesn't work, said Wolfers and Stevenson. They also said that as women have got better and educated, the opportunity cost of the women staying at home has got very high. So they said, they put forward a very convincing study. They said marriage is about two very similar people, Tez, Southlok, age, education, everything is similar. Speaker 2 (6:07) They're Speaker 1 (6:08) getting together and spending life together because that's why they find that's how they get enjoyment, that's how they live a fulfilling life. So they say marriage is about enjoyment, not about some theory of the firm type. So the Wilfredson-Stevens theory says, you marry. for happiness, to Speaker 2 (6:24) live a Speaker 1 (6:24) good life rather than some optimizing on some division of labor. So this is called hedonic marriage. The wedding Speaker 2 (6:31) of Speaker 1 (6:31) Wolfer and Stevenson is called hedonic marriage. In this model, like marries alike. Similar people get married. Now, your model was very powerful because in this model, what Speaker 2 (6:41) is its Speaker 1 (6:41) prediction? Its prediction is the person has to grow up. And you have to be in your late 20s, early 30s. You have to be the finished article, you're educated, your career is on its way, your world outlook. Remember, biology suggests that till the age of 24, 25, human brains are developing, right? In fact, somebody had told me this when I was 24, 25. basically only at 25 does the human brain fully mature. And therefore, in this theory, in the Stevenson-Wolfer's hedonic marriage theory, marriage will happen later and later in life because hedonic marriage and similar people have to get matched up. The data from the Western world shows that the Stevenson-Wolfer's theory is right. So in the West, there Speaker 2 (7:25) are two Speaker 1 (7:25) things where there is a lot of clear data from the rich countries. Marriage rates in the West are roughly down by 50 % since 1970. So in the last 55-60 years, the marriage rate has gone down by Speaker 2 (7:36) half. Speaker 1 (7:37) And the mean age at first marriage, the age Speaker 2 (7:40) to get Speaker 1 (7:40) married between 1990 and 2017, so in a 27-year period, the mean age of marriage has jumped by 6 years. So in the West, men and women are getting married Speaker 2 (7:56) in Speaker 1 (7:56) their early 30s. Speaker 2 (7:57) Earlier Speaker 1 (7:58) it was in the mid-20s. So it was around 1990s, now it's in the early 50s. Speaker 2 (8:03) So Speaker 1 (8:04) rates are down, age is up. So this is the theory of the West. This theory has come to our country. Speaker 2 (8:11) So that brings me to the next question. Because India is one of the 40 poorest countries in the world. We are still a very poor country on a per capita basis, if you think about it. Why is the Western model making its way in India? Why do you say that? Speaker 1 (8:26) So luckily, I don't have to answer such a tough question. It's a very tough question. It's a fascinating question, by the way. So, Nandita, if you're a sociologist or an anthropologist watching or an economist watching,