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6 themes to ride India’s rise from a $3 tn to a $6 tn economy
Increased activity in manufacturing and defence will in turn lead to growth in banking, while higher discretionary spends would help drive the consumption sector.
India is poised to be a pivotal force driving both Asian and global growth in the coming years.
Increased activity in manufacturing and defence will in turn lead to growth in banking, while higher discretionary spends would help drive the consumption sector.
India is poised to be a pivotal force driving both Asian and global growth in the coming years.
The S&P BSE Sensex touched an all-time high of 63,601.71 points on June 22, 2023. Market experts are optimistic about a new and emerging India, propelled by worldwide shifts, and domestic investments in technology and energy. There is even a view that India may outpace Japan and Germany, emerging as the world's third largest economy by 2027. Additionally, by 2030, India is expected to house the world’s third largest stock market.
India is poised to be a pivotal force driving both Asian and global growth in the coming years. The trajectory of India's development in the next decade is expected to mirror China's transformative journey from 2006.
ManufacturingAccordingly, we feel there are six sectors that will especially benefit from this transition.
India is expected to become a global manufacturing hub. Attractive corporate tax reductions, investment incentives, government schemes like Make In India, and robust infrastructure development are fuelling growth and capex in sectors like capital goods, pharmaceuticals, engineering, and more. The world’s China-plus-one pivot is also expected to help India's manufacturing sector. The share of manufacturing in India’s GDP is projected to reach 21 percent by 2031.
In manufacturing, we are particularly watching the defence sector. For decades, India’s investment in companies in this sector was negligible. But now that the government has opened them up for private investment, the opportunities are immense. For instance, the proposed jet engine deal with the US could send stocks like Hindustan Aeronautics Ltd (HAL) in an upward trajectory. L&T has made giant strides in this area, and so has DCX Systems, AIA Engineering, etc.
Discretionary spendingReliance Industries has its finger in almost every pie. It has been a dream stock for decades and will continue to remain so, by virtue of its omnipresence and vision.
What used to be considered a luxury a few decades ago is not so any longer. People used to eat out extremely occasionally, but now it’s a regular affair for many families. Owning cars and air-conditioners is commonplace. Increased work-from-home post Covid has seen youngsters aspire to buy larger homes.
All this has led to a rise in discretionary spending, and hence we see stocks in this space hit higher highs.
AutomobileIndian consumers are expected to have increased disposable income, leading to a potential doubling of overall consumption from $2 trillion to $4.9 trillion by the end of the decade. Non-grocery retail sectors like apparel, accessories, leisure, recreation, and household goods are expected to benefit the most. Some of the the notable firms in this space are Voltas, Dixon Technologies,
Amber Enterprises, etc.
Travel and leisureA car is no longer an aspirational object, but more of a must-have. While brands like Maruti Suzuki India Ltd still hold sway for their pricing and fuel economy, a new India has fuelled the growth of brands such as Tata and Mahindra & Mahindra. The demand for their products is evident from the long waiting periods for their cars. It is only natural that their stocks are doing well, as also the stocks of Bajaj Auto and Eicher Motors.
Banking and financial servicesThis too is linked to the rising discretionary spending of an average Indian consumer. The government’s push for schemes like Udaan, connecting tier 2 and 3 cities, and trains like Vande Bharat, is helping the Indian middle class enjoy the fruits of their labour in relative style. This is naturally going to push up stocks like IRCTC, ITC, Indian Hotels, Indigo Airlines, and even booking sites like easemytrip.
Spending requires money and where there is money, there are banks and financial service providers. The new economy has also brought in new fintech products that make banking easier.
Renewable energyBoth public and private sector banks, along with non-banking finance companies (NBFC) and fintech firms are expected to unlock significant value. Factors such as credit growth, low credit costs, balance sheet cleanups, and robust earnings will contribute to this growth. Noteworthy companies in this sector include Axis Bank, ICICI Bank, Canara Bank, State Bank of India (SBI), as well as NBFCs such as Bajaj Finance. These entities are well-positioned to capitalise on the sector's potential, and present compelling investment opportunities.
By 2030, India hopes to have 450 GW of renewable energy capacity, comprising hydropower, biofuels, solar power (280 GW), and wind power (140 GW). The country has made considerable progress in growing its renewable energy industry and is on course to achieve this ambitious target.
What should investors do?The energy transformation and rising energy consumption in India will create new opportunities for investment and growth from which companies such as Reliance Industries, NTPC, Adani Transmission, Adani Green Energy, Tata Power, ONGC Ltd, and others may stand to benefit.
It makes sense for an intelligent investor to invest long-term in India’s growing sectors. But remember, not every growing industry will provide handsome returns. What may seem promising today may not be so tomorrow. Hence, it is always advisable to look at your portfolio every quarter and fine tune your investment strategy. While a sector may continue to grow, a specific stock may not perform per expectation. Therefore, diversify.
High inflation, heightened geopolitical risk, and central banks' shift from stimulating growth to combatting inflation have created challenges for many countries, with some facing recessionary pressures.
Nevertheless, it is vital to maintain a long-term perspective that extends beyond the immediate concerns of 2023 or 2024.
