As equity markets continue to soar, valuations are beginning to look stretched. Hence while equities are likely to continue outperforming other asset classes, it is time to be stock-specific and focus on segments which still present a favourable risk-reward paradigm. Also, diversifying and investing in some other assets to hedge your risk is desirable.
Let us discuss five themes to bet on in the current environment:
1. Electric Vehicles: Slowly but surely, electric vehicles are getting accepted. Over the next few years companies engaged in manufacturing electric vehicles as well as those supplying components and infrastructure for electric vehicles should see their business grow manifold. “Already there are various companies in India supplying to electric vehicles, various parts and components. The challenge will be to identify the segments which will see the maximum traction and then identify the winners in those segments. While manufacturers of electric vehicle battery and battery parts would obviously stand to gain a lot, there would be other segments too. Identifying the winners would not be easy as it would entail a deep research and follow up on how the market for electric vehicles develops. Nevertheless, clearly this theme can be a rewarding one to focus on,” says Ashish Kapur, CEO, Invest Shoppe India Ltd.
2. Power: Availability of power in remote areas is another theme to focus on. Ujala and Saubhagya schemes are ensuring that remote villages and poorer sections of the society, that continued living without power, are now getting access to electricity at a fairly fast pace. These new areas and sections that are getting access to electricity will give rise to astounding demand for electrical appliances, white goods and wires. Leading manufacturers and distributors of white goods, home appliances, wires and components would be the players that are likely to multiply their businesses and generate enormous investor wealth.
3. Consumer Finance: Consumer credit in India is at 5% of the GDP compared to nearly 100% in most of the developed world and China. Traditionally Indian households have been averse to taking credit, but that is changing rapidly. The younger generation, especially in urban areas, is on a spending spree and is not averse to using credit to fulfil its aspirations. “The result is a burgeoning demand for consumer finance. Private sector banks and NBFCs are at the forefront in taking advantage of this boom. This phenomenon of traction in retail finance is accompanied by a steady decline of public sector banks. Hence we have a situation where not only is the market for consumer finance expanding, but is accompanied by a rapid shift from public sector banks to the private sector NBFCs and banks. This makes private sector consumer finance players a great theme to bet on for the next 5 to 7 years,” informs Kapur.
4. Incremental demand traction in rural India: A number of initiatives and policy changes of the government are bound to increase spending power in the rural economy. Road construction in rural areas is gaining momentum. Connectivity by road literally translates to ‘Road to progress’ for these underdeveloped hinterland areas. Besides this direct transfer of fertiliser and other subsidies, availability of cooking gas in the rural, semi urban and slum areas of urban under the Ujwala scheme, crop insurance under the Pradhan Mantri Fasal Bima Yojana, soil health cards and various irrigation and micro irrigation initiatives will all add up the income of farmers and rural population in the coming years. Companies having rural presence and distribution as well as dealing in products which have demand from rural areas will benefit from these initiatives in a big way.
5. Gold: This is a commodity which can give us the best hedge against stock investments. This is because investors flock to gold as and when gloom surrounds the economic environment. They also do that in periods of uncertainty. “With stock markets on a multi-year high, domestic economic data looking worrisome in the near term and global tensions mounting on the back of an imminent war or military showdown between the United States and North Korea, gold is certainly an asset where you would want to park some of your hard-earned money. The fact that it has underperformed other asset classes and is under owned makes it nearly a risk-free investment option with good upside potential,” says Kapur.