India is said to be an ‘oasis’ in the desert. Here are some sectors to watch for


India is poised to become the world’s second-largest economy by 2075, according to Goldman Sachs.

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India’s strong growth prospects and recent stock market boom has piqued investor interest, drawing attention and increasing exposure to a once ignored market.

“India’s growth story is greater than the average … Whatever the world is grappling with, it’s business as usual for India,” said Feroze Azeez, deputy CEO of Anand Rathi Wealth.

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Major economies were hit by higher inflation during the Covid-19 pandemic, but India’s inflation was already elevated. The country’s inflation rate stood at 7.59% in January 2020, while that of other large economies like the United Kingdom and Japan were low, at 1.8% and 0.8% respectively in the same month.

Azeez said high inflation is a situation that India is used to and it has “always traveled the path of higher inflation and higher interest rates.”

In June, India’s inflation rate was 4.81%, which remains within the Reserve Bank of India’s tolerance band of 2% to 6%. The central bank has left interest rates unchanged at 6.5% since April.

“All the macro variables are stacking and we are in the growth cycle … There is a paradigm shift and flight of capital from Indian households savings to equity to contribute to the India growth story,” Azeez told CNBC’s “Squawk Box Asia” last week.

The International Monetary Fund recently raised its 2023 growth forecast for India, citing stronger growth in the fourth-quarter last year, powered by domestic investment.

Both the Sensex and Nifty hit all-time highs in July and analysts are confident the indexes will bring positive returns for years to come.

“Many people have said in the past that India is the place to invest in, but they have been disappointed because [the momentum] will start and it’ll suddenly die out,” said Soumya Rajan, CEO and founder of Mumbai-based Waterfield Advisors.

But recently there has been a “confluence of positive flows” from both domestic retail and foreign institutional investors due to an “amazing allocation towards equity investments,” Peeyush Mittal, portfolio manager at Matthews Asia, told CNBC. 

More companies are also adopting a “China plus one” strategy and setting up manufacturing operations in India, boosting the country’s long-term outlook, Nilesh Shah, managing director at Kotak Mahindra Asset Management said.

“There is a combination of positive sentiments, higher flows, and backing from the fundamentals which is causing the Indian market to move higher … Overall investments in India are on revival mode,” said Shah.

“So whichever way one looks at the economic numbers, India appears as an oasis in the global desert,” he added.

Although India’s monsoon season and general elections in 2024 could create volatility in the coming months, analysts remain optimistic and recommended four sectors.

Sectors to watch

1. Financials

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Matthews’ Mittal said India’s HDFC Bank and ICICI Bank are good buys and are set to continue taking market share from public sector banks. Shares of HDFC Bank have gained 1.4% so far this year, while ICICI Bank has jumped 11%. 

Although Rajan was optimistic, she remains neutral on banks as the sector “had a really good run, so the exponential upside is not huge, but will be fair.” 

Mittal also noted there are “decent” opportunities in non-banking financial names such as Bajaj Finance and Mahindra Finance

Bajaj Finance has gained 11% since the start of 2023, while Mahindra Finance surged by 26% during the same time. 

2. Fast-moving consumer goods

Shoppers purchase groceries at the upscale LuLu Hypermarket located in the Lulu International Shopping Mall in Kerala, India, on May 25, 2022.

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Rajan also noted that consumption is also rising in rural India, which stands to benefit companies like Hindustan Unilever and Britannia Industries.

“These companies are now suddenly realizing their power as the aspiration of Indians grow and they move towards branded products,” she added.

3. Manufacturing

Global companies are moving their manufacturing lines to India as more of them begin to see it as Asia’s alternative to China.

The country would hence highly prioritize ramping up its manufacturing capacity so it has the adequate infrastructure in place to be a leader in global supply chains, Kotak’s Shah pointed out.

“The China plus one trend means that a lot of global outsourcing is shifting, and we believe Indian manufacturing companies will be able to participate in global supply chains. The sector will do well in the next couple of years,” said Shah said.

An engineer works on a component at the Godrej Aerospace manufacturing plant, in Mumbai on July 10, 2023.

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However, Rajan pointed out that India has a lot of catching up to do if it wants to match China’s manufacturing prowess.

Even though companies say that they are adopting a “China plus one” strategy, “that plus one has not necessarily been India, it could be other South Asian and Southeast Asian countries,” as the country is still grappling with shortfalls in its infrastructure, she said.

“The big play is of course around infrastructure and capital goods,” she added. “Whether it’s auto components or heavy engineering, these companies are expected to do well.” 

4. Health care

If investors were to bet on which sector in India will continue remaining strong in the next three to five years, pharmaceuticals will be a good pick, according to Shah. 

“The world is aging and needs cheaper competitive medicine, and Indian companies fit well,” Shah said. “When the world is looking for competitive healthcare, Indians through their doctors, medicines, treatment or cost of delivery, will be able to do better.” 

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However, Matthew Asia’s Mittal said that instead of buying into pharmaceutical companies, upstream companies such as Syngene will be a good investment opportunity. Although such companies do not directly sell pharmaceutical products, they are involved in the research, development and manufacturing of them.

Will investors return to China? 


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