The new themes for this year and the preferred stocks where you can park your long-term investments...
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Income inequality, a perennial subject of discussion in India, has acquired a greater significance during the current bull run. Not everyone has gained uniformly from India’s growth story. Those at the top of the food chain — i.e. promoters and directors — have demonstrated a faster growth in their income and wealth than employees and small shareholders.
For many of us, this may be a cause for concern, but for an opportunist investor, this trend provides another opportunity to make money.
Investors are advised to put their money in companies that sell goods and services to the swelling upper-middle class. The potential investment targets can either be manufacturers of high-end consumer goods, lifestyle products or providers of leisure and entertainment.
Increased expenditure in the premium category indicates bullishness. There are many ways to quantify economic inequality in an economy. We have used income and wealth generated by India Inc as a proxy to gauge the income and wealth inequality in India.
As Corporate India tackles several challenges and generates huge profits, the stakeholders — i.e. the promoters, top management, shareholders and employees — are witnessing an unprecedented rise in incomes and therefore, their standard of living.
Financial Sector
The era of ‘lazy banking’ is long dead and gone. The banking and financial sector has acquired a new spanking avataar in a span of just a few years. In fact, today, India has emerged as a hub of banking and financial services at the global level. One big reason is India’s current economic growth story.
A strong surge in the potential growth to 8.5-9% has improved income levels of Indians and hence, the overall surplus cash balances and savings. Banks and other financial services are end beneficiaries of this boom. This is clearly reflected in the composition of gross household finance savings. The share of bank deposits, savings in the form of mutual funds and equity shares has gone up significantly from 38.4% in FY04 to 62.0% in FY07.
Apart from the retail segment, corporates are big users of banking and financial services. Increasing corporate savings are either parked with banks or mutual funds. Investment demand is a major driver for the current surge in economy and will be the same in forthcoming years.
Thus, to finance the huge capital demand, India Inc will rely on banks, non-banking financial companies (NBFCs) or the equity market. So, ample availability of resources, coupled with easing interest rates, will enable banks and other financial services to do well, irrespective of market conditions. Nevertheless, with an eye on maximising future opportunities, banking and financial companies have raised capital or are planning to raise it in the coming years, which will offer a leverage to raise their assets.
Media
Humourists describe advertising as the science of arresting human intelligence long enough to get money from it. Whether or not this definition is true, the year 2008 is likely to be a bonanza year for media stocks, given the huge potential in advertising spends.
Experts feel that ad spends are likely to trace the broader growth in the economy and consumerism. While ad spends will provide a trigger for good performance by broadcasting companies, increasing penetration of content distribution methods, including DTH and CAS, are likely to add sparks to the party.
Apart from broadcasting, content providers also have a busy schedule lined up, given the ever growing number of TV channels and shows. This spells a bonanza for companies which are engaged in the production of TV shows and animation.
Moreover, the increasing number of multiplexes and aggressive promotion of movies mean that companies engaged in the business of production, distribution and exhibition of movies will also have
a good time.
All said and done, the party holds promise for only a handful of players as most of them are already looking richly valued. This means investors have to look for growth stocks. Companies which enjoy a pan-India presence and offer services in various media segments are likely to be the biggest beneficiaries of these trends.
Infrastructure
Infrastructure is the pillar of economic, as well as social development. If various reports and studies are to be believed, India is set to emerge as one of the world’s largest economies. This is not achievable unless infrastructure improves. In the current scenario, lack of proper infrastructure is a bottleneck in the growth of the Indian economy. Sectors like power, rail and ports have to improve substantially if they want to meet the rising demand from India Inc.
Infrastructure investment requires huge initial capital outlay, which was considered to be a big hurdle in the past. With rising government revenues, a bullish stock market, huge foreign capital inflows and burgeoning corporate balance sheets, mega investment projects in infrastructure are no more a dream.
We feel infrastructure growth in India has reached an inflexion point and historical growth may no longer act as guidance for the future. So, will we ultimately see the kind of airports, ports, trains and roads that we have so far seen only in Bollywood movies? Looking at the revolution in the telecom sector, this cannot be ruled out.
This growth will have a cascading effect across a number of sectors, ranging from construction, cement and metals, to capital equipments and project finance, among others. But how big is this opportunity for India Inc and its investors? ETIG does a reality check by benchmarking India’s infrastructure growth against other countries to highlight the gaps and identify the investment opportunities.
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