India Investment Themes: What’s next?

Prior to the election results, most brokerages were bullish on energy, capital expenditure (capex), and travel & tourism as these sectors were expected to benefit post-election due to policy continuity under the BJP-led NDA.

The election results have sprung a huge surprise for the markets as the Bharatiya Janata Party (BJP) was unable to achieve an absolute majority on its own and that has significantly changed the investment dynamics. From a market perspective, it’s time to revisit the big themes - how many still hold and what could be a new priority going ahead.

Prior to the election results, most brokerages were bullish on energy, capital expenditure (capex), and travel & tourism as these sectors were expected to benefit post-election due to policy continuity under the BJP-led National Democratic Alliance (NDA).

Experts anticipate that these sectors will remain in focus irrespective of the new government and its composition but add that segments like solar, semiconductors, agriculture and defence will also be a high priority given their importance in the overall economic development and self-reliance and no government can afford to ignore these.

Here are the seven investment themes to watch out for:

1. Solar power

Experts believe that power – both traditional and renewable – will continue to be in focus as economic growth cannot happen without power. Also, the push towards electric vehicles and the demand for railway electrification along with the growing need for data centres and AI will fuel the demand for power.

The push for solar rooftops will continue to be a huge growth opportunity, they say, highlighting that government initiatives like the Pradhan Mantri Kusum Yojana will ensure that solar energy could be the biggest gainer even as it is still at a nascent stage currently.

Experts expect long-term opportunities for investments within the solar segment.

Vikas Gupta, founder and small case manager, Omniscience Capital, says that while many of the stocks within the segment saw a major fall on Tuesday, the sector is expected to witness growth opportunities, irrespective of which government comes to power.

Also read: What next for momentum stocks after reduced majority for NDA coalition

The fall, he adds, has made some of the stocks within the power sector – including renewables which are typically more expensive than conventional power – more attractive.

Stocks in focus include Power Grid, NTPC, ONGC, Adani Green, Reliance, Suzlon, NHPC and Coal India, etc.

2. Growth in manufacturing – Semiconductors, electronics and more

While China continues to be a global hub for manufacturing semiconductors, the Indian government over the last few years has been taking initiatives to encourage the segment with schemes like Production Linked Incentive (PLI) and Design Linked Incentive (DLI), for instance.

Nirav Karkera, Head of Research, Fisdom, notes that the focus on semiconductor manufacturing and design is significant, primarily driven by government initiatives and a global demand.

“The current government is really committed to getting semiconductor manufacturing in India,” says Karkera highlighting that the PLI schemes aim to support a range of manufacturing sectors, including chemicals and technology development as well.

Currently, there are limited options in terms of listed stocks within this space but experts see significant potential for growth over the long term.

In an earlier conversation with Moneycontrol, Sunny Agrawal, Head of Fundamental Research at SBI Securities, said he believed that India is fast emerging as a global supply hub for electronics projects and that the semiconductor space “offers significant growth opportunities across the value chain as India tries to be self-reliant for supply of chips”.

Listed companies that could be in focus include CG Power, Tata Power and HCL Tech.

3. Agricultural infrastructure

Agricultural infrastructure in the form of greenhouses, irrigation, and harvesting units will be in focus along with logistics for agricultural products, says Karkera.

“Improving logistics, particularly for agricultural products, is crucial for reducing waste and improving efficiency,” he adds.

In a recent report, Motilal Oswal Financial Services stated that the agriculture sector could see a revival with predictions of a La Nina weather pattern for FY2025.

“La Nina leads to above normal monsoon, which bodes well for the Indian agriculture industry. Historically, during moderate to strong La Nina forecasts, the Kharif production in India has witnessed an increase ranging from high single digits to high teens. A similar trend is observed for Rabi production, with a notable increase, driven by rising reservoir levels following La Nina conditions,” stated the report.

NBCC and Kirloskar Brothers as well as logistics players like Snowman Logistics, Gateway Distriparks, etc, could be key beneficiaries.

4. Indigenisation in the defence segment

In a recent report, Anand Rathi said the Indian defence sector is witnessing a transformative phase characterised by increasing funding, defence budgets, and defence exports.

“The surge in investments in the sector reflects India’s growing emphasis on bolstering its defence capabilities and nurturing indigenous defence manufacturing,” said the report.

Incidentally, under the Make in India initiative, the government has been promoting local defence equipment production.

While defence players like HAL, BHEL, Bharat Forge and Bharat Dynamics could benefit, key challenges for the sector include longer execution timelines and potential changes in budgetary allocation to the segment.

5. Hydrogen cell technology

“The use of hydrogen cells in powering our vehicles is something which this government may actively look into and companies in the space may gain,” says Siddarth Bhamre, Institutional Research Head - Asit C. Mehta.

Under the National Hydrogen Energy Mission (NHEM), the government aims to establish India as a global leader in the hydrogen economy through research, development, and deployment of hydrogen fuel cells for various applications, including transportation.

Additionally, schemes like FAME provide incentives for hydrogen fuel cell vehicles, encouraging manufacturers to invest in this technology.

In a previous conversation with Moneycontrol, Alok Agarwal, Head – Quant, and Portfolio Manager at Alchemy Capital, said that the green hydrogen revolution is expected to boost producer profits and enhance valuation multiples of companies operating in the space.

Currently, while there are no pure-play stocks within the segment, many larger players like NTPC, Reliance Industries and L&T are stepping into the segment.

6. Domestic travel

India has a huge scope for boosting tourism and the development of tourist destinations, infrastructure, and hospitality services will continue to lead to secondary benefits like employment generation and overall economic growth.

“Efforts to promote domestic tourism aim to reduce foreign exchange outflows and boost the economy,” says Narendra Solanki, Head of Fundamental Research at Anand Rathi.

Stocks that could benefit from this theme include Lemon Tree and ITC as well as travel software companies like RateGain.

Other areas of growth

While the IT sector is set to benefit from Digital India initiatives and global opportunities in AI, Gupta of Omniscience Capital believes that IT could also be a theme for the next few years with a larger revenue flow coming from generative AI.

“Indian IT companies are well-positioned to execute AI projects, driven by demand from major cloud services providers like Microsoft Azure, Amazon AWS, and Google Cloud. The companies which will execute those AI projects are the Indian IT companies,” he says.

Also, with a push towards smart cities, sectors like telecom could also gain going ahead with opportunities for new entrants on the back of the development of technology such as 5G.

Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.