ET 500: Five investment themes that may drive change over next 5 years (2024)

Sep 16, 2014, 11:12:18 AM IST

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ET 500: Five investment themes that may drive change over next 5 years

Jwalit Vyas, ET Bureau 
It's natural for new themes to catch investor attention, and it isn't unusual for those who invest in matured and dying themes to burn their fingers. Successful investing requires anticipating change and its implications. 
This kind of top-down investment approach with a focus on broader, macroeconomic themes that an investor can use to identify strong companies is known as thematic investment. 
The success lies in identifying trends that sustain over the medium term. Risks are high, but returns are manyfold for investors who identify mega trends early. Take, for instance, the pharmaceutical industry - those who picked the right stocks in 2008 would be sitting pretty now. 
And, longer the investment horizon, the harder it becomes to visualise an asset's likely performance. 
Here, we list five potential game-changing trends to watch out for over the next five years and some of the likely beneficiaries of secular changes in a rapidly changing economy.

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The Big Shift From Unbranded To Branded

Tastes of the young and new Indian consumer are changing. They prefer buying from large brand than going to mom and pop jewellery stores. 
These changing tastes and lifestyles automatically offer an advantage to the organised branded sector. 
Having a strong brand is a huge positive - that's probably why consumer companies account for more than 70% of Warren Buffett's portfolio stocks. But identifying the right industries and companies with strong brands and business models in the consumersegment is critical. 
Companies with a presence in unorganised segments and with strong brands have seen huge growth with rising incomes. Consumers are increasingly shifting to branded products. 
There are several such instances - Titan Industries in the jewellery segment, Page Industries in the unorganised innerwear segment, Hawkins and TTK Prestige in the cookware sector, Cera and HSIL in the sanitary ware industry besides in PVR and INOX in the exhibition industry. These companies have given good returns to their investors.

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Internet And The Data Boom

Welcome To India

Tourism will be one of the key focus areas of the government as this sector has the potential to attract substantial foreign exchange. 
The new NDA government has a plan to develop 50 tourist circuits. Going by how Narendra Modi has transformed Gujarat when he was the chief minister there to a major tourist destination through a major drive - tourist inflows have grown at 17% in the past four years. It may be safe to assume that the government may be able replicate the strategy country-wide too. 
After all, foreign tourist arrivals in India were just 6.8 million in 2013, compared with 27 million in both Thailand and Malaysia, 38 million in Turkey and 55 million in China. 
These numbers show that tourism has much more potential in India, a country with a rich history, diverse culture and geography. Companies in the tourism industry - including hotels, transporters and travel operators - may get re-rated once tourist inflows pick up.

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Made In India

This could emerge as one of the key flavours of the market. 
China, which has dominated the global exports market for two decades, is gradually losing competitive advantages such as cheap labour, low cost of capital and, more importantly, an undervalued currency. At the same time, India has become more competitive on all these fronts. 
According to a McKinsey report, manufacturing in China is even more expensive now than several European nations, including the UK (except London). The report says India is one of the best destinations for manufacturing. 
In fact, the only country ahead of India on the list is Mexico. Besides improving competitiveness, the Narendra Modi government's willingness to support the industry and various incentives bode well for export-oriented manufacturing companies. 
Well-established manufacturers who derive sizeable revenue growth from sectors such as textiles, chemicals, auto-ancillaries and engineering could see a significant improvement in the next few years.

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Niche Financing Companies

Although one may try identifying new fancy themes, the financial sector is one such sector which will seldom goes out of flavour. 
No economy can flourish without having access to capital. So if an investor is bullish on India, his portfolio would be incomplete without having a financial sector stock in it, especially when the interest rate cycle is at the peak and is expected to reverse soon. 
In addition penetration of organised financing in India continues to remain very low. Within the financial sector, the key to a good investment bet would be to identify a company with a strong management, wide reach and preferably a niche financing company. 
Companies with a niche focus such as consumer financing, auto financing, housing loan financing, SME financing and rural and micro financing could be better bets.