New Delhi, Prakash Gagdani. The COVID-19 pandemic has also completely changed the way we work and interact with our peers, friends and businesses. However, it is generally said that in every adversity there is some opportunity hidden. Today, the Indian economy is getting back on track due to the rapid vaccination campaign launched across the country and the COVID prevention measures taken by the government. Against the backdrop of such a scenario, today we discuss the segments which offer attractive investment opportunities to the investors.
Theme 1- Consumption
India is now becoming overly aspirational. Not only is consumption increasing, but the pattern of consumption is also changing. Over the past 10 years, household consumption in India grew at a rate of 13 per cent year-on-year to reach Rs 120 trillion in 2019. Apart from basic needs, people are now also spending money on health, technology, lifestyle, education and leisure. Although the pandemic caused a disruption in the consumption cycle, it was a temporary setback rather than a long-term structural change. There are many factors that are going to drive consumption after the pandemic. Firstly, there is a strong growth in the income of the people, which also coincides with the expansion of the middle class. Second, technology is connecting people and businesses in many ways and enabling better exchange of information, services and products. And third, the Indian population is very diverse and steps need to be taken to meet the needs of a wide variety of people. All these factors together are likely to boost consumption in the years to come. As we emerge out of the pandemic, consumption is likely to increase and this has a positive impact on many sectors and industries, providing attractive investment opportunities.
Theme 2- Banking
It is well known that the banking sector drives economic growth. It acts as a bridge in the economy. It helps retail customers like you and us to keep their money safe in savings accounts and also provides opportunities to invest and generate returns through their investment products. Also, the money you keep with banks is lent to corporates who need funds for expansion and growth and also to retail customers who want to buy properties. After the Global Financial Crisis (GFC), most banks had to deal with asset quality issues, which stemmed from the proportion of their loan books being converted into non-performing assets (NPAs). However, the good thing is that in today’s situation many banks have either cleared their loan books or made provisions for most of the old NPAs. Thus, they are moving out of the situation arising out of NPAs and appear to be in a better position to capitalize on the emerging opportunities. In this sense things are also gaining momentum. Sectors like metals, pharmaceuticals, power, cement, textiles etc. are already witnessing innovation. With economic activity picking up and demand and growth improving, companies are likely to focus on future growth and expansion plans. This will lead to an increase in capital expenditure and demand for credit.
Theme 3- IT and Digital
This is a topic that should be ignored only at your own risk. The world is changing and a large part of this change is being made possible due to technology and digital solutions. The importance of technology and digital solutions is increasing to such an extent that it is believed that in the future, only those companies that will inevitably be able to embrace digitization will survive and grow. Indian IT companies are reinventing themselves to tap the potential of new and emerging technologies like cloud, blockchain etc. As companies start adopting these solutions, Indian IT can move into a phase of sustainable growth, providing good investment opportunities.
While the above three themes are likely to work well in the near future, it is also important how you deal with these themes. Investors can either invest in select stocks or can choose from mutual funds and exchange traded funds (ETFs) that are themed. Additionally, investors looking to capitalize on the digital theme can also invest in international mutual funds that offer this exposure. Even as you rebalance your portfolio, you should remember that selection and risk mitigation will continue to be an important aspect.
(The author is the CEO of 5paisa.com. Published views are his personal. Be sure to consult your investment advisor before investing.)