SECTORS OF POTENTIAL GROWTH
The good thing about the Indian market, riding on the back of an economy that has grown by over 7 per cent in the last two years, is that an investor or entrepreneur can’t miss being part of the growth if invested in the stock markets carefully or start an enterprise belonging to one or some of the sectors. Sector wise we are discussing below. The bad part can be the choice to make between so many!
Every time you drive on the road, shop at a mall, pop a pill, swipe a card, send an SMS, flip a light switch or tuck into a specialty meal, you are intersecting with the sunrise sectors of India that is sectors having tremendous growth potential.
That pretty much looks like all the sectors out there. When a country is under construction, and domestic consumption is booming, pretty much everything on the markets is fair game.
The current volatility notwithstanding, India’s big picture is bright and happy. Interest rates, crude oil prices and rising input costs are bugbears, but India remains the second fastest growing economy globally. No wonder, looking at an ambitious target of over 8 per cent GDP growth by say 2010 or 2012.
Reviewing Indian economy Global Experts have identified six sectors, and four companies in each sector that should beat the GDP growth rates by a good margin.
Good infrastructure reduces cost and improves efficiency. The result is obvious each time we turn our eyes towards the growth experience of China. Good infrastructure in the form of roads, airports, ports, power and communication has helped China emerge as one of the cheapest manufacturers of goods globally.
The Indian growth has been largely consumption led and unless a big infrastructure push comes at this stage in terms of large investments in mega projects, everybody knows that the growth will peter out.
Estimates are that the country would require over $200 billion investment by 2012 to set up various infrastructure facilities, including $30 billion for roads, $40 billion for urban infrastructure, $10 billion for airports, $20 billion for ports among others. Needless to say, companies linked with infrastructure will see growth in sales.
Banking & financial services
Not very long ago individual loans were not only expensive, they were difficult to get. Today, we find banks chasing potential customers to sell them loan products with an unbelievably wide range of payment options to choose from. Retail lending of banks has been growing at exponential rates ranging between 22 and 41 per cent a year since 2001-02.
Banks have moved from being makers of deposit-loan spreads that made it vulnerable to interest rate cycles to the more regular fee-based income adding to the profitability. Aggregate fee based income of 38 banks has grown at an annual rate of 14.2 per cent during four years ended March 2005 as against a 6.9 per cent a year in fund-based income during the same period. Of course, the bread and butter of providing basic banking services to an economy in a boom, is there.
After a three-year lean period, the fast-moving consumer goods sector is beginning to roll again. These were the years during which the organized sector got lean, fit and profitable. And once you get lean and mean, the world looks like a piece of cake.
Domestic players are now seen drawing global plans for mega acquisitions of global companies.
In fact, some of them like Tata Tea, Tata Coffee and Godrej Consumer Products have recently announced acquisitions. Domestic companies are progressively developing new technologies and products that are not only meeting existing consumer needs but also creating new consumption categories in India as well as developed nations.
Rural India is at the beginning of an unprecedented boom. The fact that penetration of many FMCG products is still at levels that are considered low, is itself an indicator of the potent demand for such products.
Take the example of the Indian shampoo market (estimated size is Rs 1,050 crore). The per capita consumption of shampoo in India is estimated at $0.6 as against $1.1 for China and $3.7 for Thailand. Likewise, even in mature categories, like toothpastes and fabric wash, India is far behind. This shows the scope of further growth in these products.
Pharmaceutical & healthcare
When financial planners in India budget for future inflation, the area with over 10 per cent inflation in household budget is personal healthcare. When the mass-affluent Indian puts health on its priority list, the pharmaceutical companies see improved revenues and profits.
India is an under-penetrated market for various healthcare products and services. India has the highest number of people suffering from diabetes, estimated at 31.7 million or 18.5 per cent of the world figure. And this is growing. If the demand is robust, the supply side is looking good with domestic companies getting ready for global competition. They are moving towards developing their own solutions in the form of patented products.
In the healthcare services segment too, a few companies have proved their ability to provide high quality healthcare facilities at globally competitive prices. This has led to higher number of foreign individuals choosing to come to India for healthcare.
Retail & entertainment
The price of a cinema ticket has gone up from Rs 20-30 to as much as Rs 100 in the past 10 years. In some multiplexes they are as high as Rs 150-200. A bag of popcorn that costs you five bucks outside needs a full 30 in the multiplexes in the new mall. The cost is pure profit on the Indian stock market for the retail and entertainment industry.
As the urban Indian goes up the Malthusian pyramid, expect this sector to boom loudly. Companies like Pantaloon and Trent have reported top line growth of 40-60 per cent during last year. The sector should report strong growth as consumption is moving out of home into lifestyle products, events, and services. The reasons are a large pool of young population, growing service sector and high disposable incomes.
Nasscom expects exports to grow to $60 billion by 2010, a compounded annual growth rate of 26.5 per cent. Not just overseas demand, there are indications of latent demand in the domestic market that is gradually converting to business for these companies.
Domestic players as well as the state and central governments are recognizing the role of Information Technology for sustaining and growing their revenues. The vast pool of skilled human resources available in the country adds to the Indian advantage. The maturing of the industry is still quite a long way and India can optimistic in look out for growth rates of 20-30 per cent over the next 3-5 years at least.