In the past decade, India has witnessed tremendous changes in terms of their saving as well as spending habits. The rise in income levels, increasing adoption of the “WEST” culture, and growing awareness of health has led to higher discretionary spending. Not only in terms of spending, but saving habits have also changed. From physical savings, traditional gold and FDs to mutual funds. This has led new sectors to emerge as winners and be a part of India’s growth story.
Having said that, there is no ruling out of the fact there are downside risks in these sectors in the near term due to the COVID-19 pandemic. However, if one has a long term vision (3 years+), then these sectors can be a good long term bet.
The sectors and stocks within these sectors that we are talking about include:
The non-life insurance industry has grown at a strong CAGR of 17% in the last 18 years and yet the penetration of non-life insurance stands at 0.93% of India’s GDP as compared world average of 2.80%. The non-life insurance comprises of Motor, Health, Fire, Marine, Crop/Weather and other insurance. The private insurers have consistently been able to gain market share.
In the near term, the COVID-19 pandemic would take a hit on the company’s performance. This would lead to lower investment income, slowdown in business, and a possible increase in claims. However, in the medium term given the rising cost healthcare and increasing uncertainty would lead to higher adoption of insurance in India.
The life insurance industry was largely dominated by LIC. However, over the past five years, strong growth for private insurers has led to an increase in their market share to 58% as compared to 42% of LIC. The Life Insurance sector is poised for strong growth due to low penetration levels (2.8% of GDP), low life insurance density and one of the highest protection gap in the world. Further, the increase in financialization of savings, rising income levels, and favourable demographics would aid growth for the life insurance industry.
In the near term, the growth would be impacted due to a sharp decline in investment income due to the fall in equity indices. Nonetheless, from a long term perspective, this sector can be a good long term bet.
Asset Management Companies
As we are all aware that the Indian mutual fund industry has grown multifold in the past decade. This was led by increase in financialization of savings, and unattractive returns of other investment avenues. Despite the sharp rise in mutual fund investors, the penetration still remains low in India as compared to other developed economies. Another big positive for the industry is despite such a sharp fall in the market, there is no big redemption pressure that has been witnessed in equity flows.
This showcases investor confidence in India’s economy and growth story. Additionally, rising number SIP flows, growing retail assets of AMCs and an increase in investor awareness would lead to healthy growth for the industry.
Talking about valuation for these companies is not prudent, as their profits depend on the AUM which in turn depends upon market performance. So, when times are good they will trade at a premium when times are bad they will be available at a decent discount.
The Indian multiplex industry has been consolidating over the past several years wherein both listed players have led the charge through a series of acquisitions. All was going well for the company until COVID-19 led to shutdown of theatres. In the current situation, the recovery in the multiplex industry would be much slower than the rest due to its nature of holding large crowds.
Nonetheless, the long term growth prospects remain bright for the industry led by continued consolidation of the industry and increase in discretionary spend Further, the content which is the main driver of footfalls has also become less volatile as more movies are reaching the Rs 100 cr plus mark. This is primarily due to more interesting stories are to be conveyed and more actors are being recognized.
The Indian diagnostic industry is expected to grow at +10% growth in the medium term. This would led by increase in the ageing population of India, rising income levels, price increases and growing health consciousness.
The business could be impacted in the near term (much lower compared to other sectors). However, this industry has the potential to attain secular growth momentum. This would be led by large organized players due to their wide presence, M&A activities.