Gold, EMS, Power Utilities among themes to bet on in Samvat 2081

In India, the demand for gold remains voracious, despite the precious metal surging to lifetime highs. In August, India's gold imports surged 221.41 percent to $10.06 billion from July's $3.13 billion, highlighting the rising appetite for gold as the festive season approaches, when it holds cultural and religious significance.

“Since Dhanteras and Diwali are approaching, we expect the demand for gold jewellery to remain upbeat compared to last year. The elevated price will not have much of an impact on festive buying. Geopolitical tensions and a low interest rate regime will likely support gold prices,” said Colin Shah, MD, Kama Jewelry.

The demand for gold is also seen in RBI’s purchases. In an effort to diversify its forex reserves and to hedge against external uncertainties, the Reserve Bank of India has been strategically increasing its gold holdings. So far in 2024, the RBI has made substantial purchases, adding a total of 54.7 tonnes to its reserves since the end of 2023 - the highest acquisition in three years, as per the World Gold Council. It’s not just India, central banks around the world are increasing their gold reserves as a hedge against the dollar which should keep prices rising.

Also Read | Diwali Stock Picks 2024: Zomato, REC, Coal India among top bets for Samvat 2081

Electronics Manufacturing Services

India is likely to place a limit on importing electronic goods, such as PCs, tablets and laptops in January, in a bid to ensure that companies turn towards domestic manufacturing. The largest beneficiary of the thrust is likely to be EMS or Electronics Manufacturing Services companies.

Apart from curbing imports, the government has already initiated various measures, such as the Production Linked Incentive (PLI) schemes and the Semicon India program, to promote electronic manufacturing in India.

With these measures, electronics production has moved up from $48 billion in FY17 to $101 billion in FY23. India’s electronic manufacturing capacity is projected to reach $500 billion (finished goods $350 billion and components $150 billion) by FY30.

“Currently, India has significant presence and capabilities of assemblers and OEMs in the electronics value chain such as Foxconn, Dixon, Amber, Pegatron, Apple, Samsung, BoAt, Atomberg, particularly in mobile and consumer electronics segments but is heavily reliant on imports for components and design capabilities across all sectors,” stated a report by Motilal Oswal Financial Services.

However, a large part of this optimism has been baked-into the prices of EMS players, such as Kaynes Technologies, Dixon Tech and Amber Enterprises. While this performance remains partly supported by consensus EPS upgrades for FY25 and Fy26, the sector has seen a massive valuation re-rating over the past couple of years on the back of continued favourable government policies, incremental investments by global OEMs and the development of domestic supply chains.

“While we do not rule out near-term stock price consolidation in EMS stocks, post a sharp rally, we remain positive on the structural growth aspect of the sector and believe that higher valuations are likely to sustain, provided the earnings growth momentum remains strong,” said a BNP Paribas report. Any correction will be an opportunity to enter these stocks as the growth runway is fairly long, analysts say.

Key stocks to watch for this theme: Dixon Technologies, Amber Enterprises, Kaynes Technology, Syrma SGS Technology and Cyient DLM.

Ports

The ports sector is set to play a very significant role in giving India a larger share of the pie in global trade, especially through the India-Middle East-Europe Economic Corridor. As of FY24, India had an overall port capacity of 2,600 million tonnes per annum across 12 major and 217 minor ports. Currently, the ports are operating at 60 percent utilization handling 1,539 MTPA.

As per estimates by Elara Capital, the overall capacity utilisation could touch 84 percent by FY30. By 2047, the government wants India to have a total capacity of 10,000 MTPA

More than 90 percent of India’s total ports capacity is operated by three entities: the government, Adani Ports and SEZ, and JSW Infrastructure. The Centre is focused on increasing the share of public private partnership (PPP) and efficiency.

“India's extensive coastline and increased investments in inland waterways, coastal shipping, and port privatization initiatives by the government are expected to benefit companies, enabling them to handle a larger share of volume at Indian ports,” stated a report by Motilal Oswal Financial Services.

According to Elara, the combined market share of Adani Ports and JSW Infra is around 33 percent as of FY24, which will likely surge to 42 percent by FY30.
Key stocks to watch for this theme: Adani Ports and SEZ, JSW Infrastructure.

Power Utilities

India’s GDP growth outlook looks robust, with new demand drivers such as data centers and the electrification of energy demand, causing a rise in power consumption. As a result, power utility companies are set to benefit.

Across a range of metrics, India’s consumption trends today mirror China’s in the 2000-03 period. Like China, power consumption in India is at an inflection point, and can comfortably compound at 7-7.5 percent over the next 10 years

“India… is a unique case where burgeoning real GDP/per capita growth, technology upgrades and electrification are all strong under-currents and could continue to drive power demand higher for years to come,” stated the Motilal Oswal report.

The broking firm estimated an investment opportunity of Rs 40 lakh crore in the Indian power sector over the next decade, with generation, transmission and smart metering accounting for 86 percent/10 percent/4 percent of this spending, respectively.

The stocks in the sector have seen a sharp run-up of late, but there are expectations of strong earnings growth, especially since the demand for power has been breaking records year after year.

“Within the power sector, we prefer segments with a short gestation period, high visibility of long-term earnings and cash flows, and low risk of an earnings miss over FY24-27,” stated the Motilal Oswal report.

Key stocks to watch for this theme: Tata Power, JSW Energy, Power Grid, NTPC

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