What Are The Market Opportunities to Capture Right Now?
The last decade set the tone for an efficient capital market. There was ample liquidity in the markets, benign interest rates, and reasonably stable inflation. It was the perfect market where you could invest in the high growth sectors and reap the benefits.
Despite some of the volatile market events such as demonetisation, implementation of the Goods and Services Tax and the once-in-a-lifetime pandemic, market opportunities were plenty. That can be attributed to companies' general growth and profitability, despite unexpected headwinds.
Soon, the market is poised such that interest rates are expected to rise, and there are also concerns about global stagflation. That means a phase of slow growth and high inflation. According to specific experts, the impact on the equities market is that there will likely be a shift from the beta market to the alpha market, where stock picking will become critical. You have to identify sectors that would stand out.
Broad-Based Market Opportunities for Stock Pickers
The following 2-3 years will be opportunistic for investors who pick their stocks right. Some of the industries to look to in the coming years are:
1. Auto, Retail and Consumer Durables
After the pandemic, consumption in the Indian markets is likely to go up. Everyone is expected to get back to travelling for work. As a result, Wage inflation will lead to higher per capita income, ultimately driving economic activity. In turn, discretionary spending will also go up, driving consumption in markets such as auto, retail and consumer durables. Discretionary spending can go up four times in the next ten years. Premium products have grown at a faster rate compared to mass products. This trend of premiumisation is likely to continue.
2. Financial Industry
Banks, non-banking financial companies and the insurance sector will likely see an uptick in the next few years. Bank balance sheets have grown stronger because of improving credit growth and NPA provision normalisation. The country's credit cycle is reviving after almost a decade's slowdown. Capex cycles are likely to turn around on the back of low cost of funds. These will drive improved valuations and profitability. The insurance sector is also growing strongly, driven by greater penetration and participation from private players.
3. Manufacturing Companies
Manufacturing constitutes about 17% of India's GDP. The government is promoting manufacturing and the Make in India strategy. Experts suggest that the government aims to make manufacturing 25% of India's GDP. That means that there will be considerable investment going into this sector. Engineering companies, primarily involved in infrastructure and exports, will likely see better growth from government incentives and reforms. Other areas that will benefit from government support are the renewables sector, railways, expressways, and electric vehicles.
The pandemic has spearheaded the shift from old technologies to cloud-based tech and artificial intelligence. Despite degrowth in the global economy, the tech sector has boomed and will continue to grow in the coming years. Indian IT companies have gained market share compared to multinational companies. Tech companies will likely witness tremendous growth in the next 3-5 years.
Both domestic and international pharmaceuticals markets are rife with market opportunities. The US generic drugs market is growing. Domestic pharma companies have invested heavily in the US markets, likely to generate returns in the next few years. In India, growth in the teens' formulations market and an ageing population is expected to support the growth of the healthcare sector in the country.
Additional read: Best Stocks to Buy in 2022
The Indian equities market is rife with opportunities for those who can do their research and spot it. Investing in respected companies with growth potential is likely to pay off in the next few years. As some experts say, it will be time for stock pickers. If you want to invest in the stock market, contact your nearest broker to open a Trading and Demat Account.
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