By Moinak Maiti & Parthajit Kayal
Circular economy refers to the use of resources to their maximum value in order to reduce use of raw materials as inputs as well as reduce wastage in the production process. Today the concept of circular economy is accepted worldwide and it is slowly gaining momentum among Indian firms as well.
Global reports suggest that the market for circular economy in India is massive and has important implications for investments. It is estimated that adoption of a circular economy in India would bring an annual benefit of $624 billion by 2050 and reduce greenhouse gas emissions by 44%.
Many companies in India are today focusing on embracing the circular economy concept in their production processes.
Circular economy focused firms’ stocks
How investors perceive a firm’s pro-environment actions and the impact of these actions on their stock prices is increasingly being studied. In recent years, ESG based investment strategies have gained momentum worldwide unlike the investment strategies based on circular economy focused firms’ stocks. Thus, the concept of investing in circular economy focused firms’ stocks could be seen as a type of thematic investment that aims to select and invest in firms that are engaged in innovative and eco-friendly disposal practices in India and globally.
Performance of focused firms’ stocks
Today,stocks of only a few firms engaged in innovative and eco-friendly disposal practices in India are traded on the stock market; namely, Eco Recycling, Gravita India, Antony Waste Handling Cell, and others. The overall market for circular economy focused firms’ stocks in India is very fragmented and affected by different economic cycles. Furthermore, the behaviour of these stocks would be asymmetric, chaotic, nonlinear, highly volatile, and risky. These stocks may
offer great returns to the investors during favourable economic conditions.
Even though investments in circular economy focused stocks may look lucrative, investors must be cautious when considering investing in those firms’ stocks. A critical analysis of the thematic views, investment risks, taxes, interest rates, and other related aspects of the circular economy focused stocks is essential before taking an investment decision.
These types of stocks are often cyclical in nature and ideal for short- to medium-term investments. However, risk averse investors should avoid such stocks as it is not possible to regularly beat the market just by implementing a particular investment strategy. Hence, a specific investment strategy must be reviewed over a period of time to achieve overall success.
The number of circular economy focused stocks that might have already started to get the Indian investors’ attention is likely to increase in coming years. However, it is still too early to say whether the investment idea based on the circular economy will gain a foothold in traditional financial markets.
Maiti is an independent researcher, and Kayal is assistant professor, Madras School of Economics
A NEW THEME
Investments in circular economy focused firms’ stocks can be seen as a type of thematic investment
The market for such stocks in India is very fragmented and is affected by different economic cycles
Risk-averse investors should avoid investing in such stocks