Alchemy Capital's Hiren Ved highlights five big investment themes for 2025

High investment opportunities under the five big themes for 2025: Hiren Ved, Dir and CIO at Alchemy Capital

According to Hiren Ved, Director and Chief Investment Officer at Alchemy Capital, markets are currently digesting a mix of cyclical slowdowns in India’s economic growth and earnings, alongside global uncertainties. Despite certain corrections in pockets of market, valuations continue to be high. However, one should be prepared for some key themes that are likely to see continued growth.

Ved highlighted  insights on the good investment opportunities among five big themes.

Revival of India’s Manufacturing Sector

The very first idea, expressed by Ved, extends beyond the concept of being just an idea. He says, “Traditionally, India has been very strong in services - also borne out by the fact that our export of services is bigger than our export of manufacturing. But I think now we are trying to find our feet in manufacturing.”

Ved sees a turning point in India’s manufacturing sector, which faced a challenging decade between 2010 and 2020. Post-COVID, the country is witnessing a manufacturing renaissance.

Traditional strengths that entail India’s strong foothold in sectors such as auto components, pharmaceuticals (including generics and CDMOs), and chemicals. “This will continue to grow with Indian companies remaining integral to global supply chains,” said Ved.

On the other hand, the emerging opportunities are across electronics and defense, followed by space technology. “Defense and EMS are two areas in the manufacturing sector, other than the traditional areas, that we will continue to be bullish,” said Ved.

He believes that the electronics sector has an opportunity size of $70 to $100 billion. “That's because if you look at the history of electronic manufacturing, which is usually low-end assembly components, etc. The manufacturing centers travel to geographies where the costs are the lowest. Meanwhile, our companies are still very pygmy sized here. There will be at least 20-25 companies which will be born out of doing various things in electronic manufacturing, semiconductors, etc.”

“India aspires to export to smaller countries. Across defence, India is spending more and more on domestic manufacturing. Many of these companies (across the three aforementioned high-potential segments), say in three to four years, will for IPO. To some extent, this is also being reflected in the valuations,” he explained.

Continued Growth of IT Services

India’s IT services sector remains a critical growth engine. Ved highlights how Indian IT companies have consistently capitalised on technological trends, from the digital revolution to cloud computing, and now, artificial intelligence (AI). As billions of dollars are invested globally in AI and IT infrastructure, Indian IT companies are well-positioned to benefit from this wave, especially as investment shifts from infrastructure to application layers, he said.

Despite a slow growth rate, Ved believes: “If you look at the rest of the market, it looks like they're underpriced. Similar for other top-tier companies. I think across both large and mid-cap, we are going to see an interesting few years for IT services.”

With maturity of AI infrastructure, he certainly believes that tech spending will surge, particularly in the U.S. where potential corporate tax cuts and deregulation could boost capex, creating opportunities for Indian IT service providers. "I think it will be a great opportunity to buy actually in that disruption. But even now you think the prices are not too bad for anybody to take a bet? ", he suggested.

Rise of Digital Platforms in India

The third major idea revolves around the rise of digital platforms in India, driven by first-generation entrepreneurs leveraging the country’s technological infrastructure, including UPI and other payment systems. Ved points to the disruptive impact of these platforms, particularly in the consumer sector, where competition has fragmented traditional industries.

"Previously, GST and demonetisation consolidated the industry in favor of the more organised players - with the unorganised players being left disadvantaged. But now, the tech platforms are enabling smaller, organised, nimble players to take birth - eating away at the margins of a large consumer category," he justified reflecting on the trajectory so far.

He further observed that this evolution follows a familiar pattern of intense competition, saying, "Everybody funds similar businesses, leading to a lot of competition, and then supply catches up. Then, eventually, there is consolidation". But there's a need for "more durable, long-term growth", he thinks. "So, invest in supply side, manufacturing, infrastructure - and then, the trickle down of that will help everybody. But there is always this jostling that happens between top down and bottom up," he added.

The Premiumisation of the Consumer

The concept of premiumisation—the increasing demand for high-end goods and services—is gaining traction in India. Ved highlights that the top 50 to 70 million consumers in the country now possess substantial purchasing power, and this wealth is manifesting in their consumer choices. While the focus often remains on India’s large middle class, the highest purchasing power is concentrated in the top quartile of the population.

This shift towards premium products is expected to persist, presenting significant opportunities for businesses catering to these high-net-worth consumers. Ved foresees continued growth in sectors offering premiumised goods, driven by the rising affluence of the Indian consumer.

Interestingly, he notes that this is the first time upper-end consumption in India is growing at a significant pace, marking a shift from the past when mass consumption was the primary driver. According to Ved, this phase of premium consumption is aligned with global patterns seen when per capita income crosses the $2,000 to $2,500 threshold, often resulting in a "J-curve" of consumption growth.

The Financialisation of Savings

The final idea centers on the financialisation of savings, a trend that has gained momentum over the past few years. Ved notes that domestic savings in India have expanded at least threefold, with investors increasingly diversifying their portfolios beyond traditional fixed-income instruments like fixed deposits and PPF. Additionally, changes in government policy, such as the reduction of tax-free benefits on fixed-income instruments, are further encouraging this shift.

This transformation marks the realization of a long-term goal to channel domestic savings into capital markets. Digital platforms have accelerated this process, benefiting wealth managers, asset managers, brokers, and other intermediaries. Ved believes this trend will continue to unfold, presenting significant opportunities in the financial sector.