Top Sectors to Park Your Money - Part 1

Textile Industry

Textile sector is the second largest employer after agriculture and it contributes 5% to India’s GDP, 7% of industrial output in value terms, 12% of the country’s export earnings.

China plus Strategy is playing out in the Textile Industry - China’s share in global T&A trade in 2019 was 34%. The share has come down from 39% in 2015.

The US banned entry of all products containing cotton from Xinjiang. This is bound to trigger a material shift in global apparel trade as China is the leading apparel exporter, accounting for more than 35 percent of the global trade and more than 80% of China’s cotton originates from the Xinjiang region. India surely stands to gain as it has a strong presence in the cotton value chain.

Region-wise diversification and players wise Consolidation - Decentralization as a theme is playing out in the industry after the crisis. Buyers are not keeping it set to one place region-wise. No one country in the company’s sourcing list will occupy a larger share.

Buyers want strategic vendors so they are consolidating their vendor base. For instance, H&M sources from 71 suppliers in India. Any consolidation in the vendor list of H&M means the elimination of small and tail-end suppliers. This will lead to gain in share by the larger companies, thus boosting their earnings.

Workplace safety is a big concern in Bangladesh – Many big brands are not comfortable in sourcing from Bangladesh due to poor working conditions. The same also highlighted by many Indian garment players.

With abundance of raw material and presence across the entire value chain, India is in an advantageous position in home textile, kid garments, etc.

The Indian Textile Industry is expected to grow at a CAGR of 10% in the next 5 years. On the other hand, the growth rate of global textile is low.

Automobile Industry

Automobile industries are witnessing a major technological shift from internal combustion vehicle (ICV) to electric vehicle (EV).

About 50-70% of the cost of an electric vehicle is battery pack. Average lithium-ion battery pack prices fell 13% in 2020 and are now down 89% from 2010-20 (Source – Bloomberg NEF). In the next 2-3 years the cost of an electric vehicle would be less than an internal combustion engine.

Global EV and Mild Hybrid Sales Expected to rise 5x by 2025 and India’s electric vehicle market could be worth nearly $206 billion (Rs 14,42,000 crore) in the coming decade if India were to achieve its 2030 electric vehicle (EV) ambitions, according to an independent study released by the Centre for Energy Finance (CEEW-CEF).
Green Energy Portfolio smallcase by Niveshaay

Digital Transformation and Internet Opportunities

India is focussing on something which is driving its fast moving digital age and the opportunities that presented itself through the form of the Internet.

In recent years, a phenomenal impetus has been given to online businesses. The almost two-year long COVID-19 restrictions only accelerated the fundamental shift in consumer comfort for online services. As of 2020, India has a staggering 622 million Internet users, and this number is estimated to grow to 900 million by 2025.

According to Goldman Sachs, the size of the Internet industry in India is set to triple to $160 Billion by 2025, with e-commerce being the largest contributor in value. This serves as an incredible avenue for investors to explore.

With the rapid growth of Internet companies and with more listings on public markets, Internet companies make for remarkable bets for long term wealth creation. 

UPI transaction value has gone up to Rs. 6.39 lakh crore in August 2021, with transaction volume increasing to 3.56 billion by the same month. This is a vital sign to show that people are now comfortable with transacting online, and these numbers are only going to grow.

Internet companies have tremendous ability to scale. They have the ability to become household names without the need to set up large retail touch points, which is a major advantage over traditional businesses. Furthermore, with the increasing per capita GDP of India, there will be a significant increase in staple and discretionary spending that is poised to be captured by Internet companies.
India Internet Opportunities by Piper Serica smallcase by Piper Serica

The technological advancements in India and its businesses have been rapidly transforming due to the increased connectivity of the Indian population through the internet and this presents itself as a greater opportunity for investors.

Life insurance, PSU banks and Real estate companies.

The entire insurance space is a great sunrise sector for long-term investors. Life insurance premium to GDP in India is about 3% which is abysmally low and much lower compared to many other smaller Asian countries, forget developed world. Insurance penetration in India can become really big with the digital business playing a huge role in acquiring online customers.

The second sector will be the top-rated PSU banks. They are adopting fintech aggressively and pivoting their bank to technology platform kind of a scenario. These will start attracting a different kind of valuation going forward. Provisioning due to Covid has been buffered sufficiently in the balance sheets now and hence, the risk of NPAs getting overblown is limited provided there is no third wave of Pandemic.

The Real estate inventory has been going down with the fresh starts in the affordable and semi-luxurious segment largely while the demand is strong due to lower interest rates, trends of bigger houses and aggressive Suburbanisation. Due to the introduction of RERA & GST, the lower rung of developers are completely wiped out. We could be seeing a 3-yr real estate cycle after these companies have done nothing over the past decade or so in the stock market.
India Opportunities Strategy smallcase by Adroit Financial Services

The above stated Sectors all look like Strong Sectors for Investors to Park their Money On! What sectors do you think look promising?

Look forward to Part 2 of Top Sectors to Park Your Money On!, where we talk to more Fund Managers who are at the top of their game in the country where they share their top picks for Sectors that Investors can Park their Money On.

(This is a partnered post)

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