What are the key factors that affect different sectors in India?

What are the key factors that affect different sectors in India?
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Below are some of the key factors that affect different sectors in India. Please note, these are not the only factors that affect the mentioned sectors.

Information Technology (IT)

IT spending across the world is a function of how well the economy is performing. In India, the IT sector primarily gets 2/3rd of its revenue from exports markets like the US and Europe. Hence, the economic state of these countries has a bearing on IT stocks in India. Further, since the majority of the revenue comes from overseas markets, the currency movement also plays a crucial role. For example, depreciation in rupee would mean more income for the company and vice versa. Data like GDP, Earnings and interest rate scenario in developed countries would hold a bearing for the IT stocks in India along with currency movement.

Key Factors to watch out for – Global growth data and Currency movement

Automobiles

The auto sector is one of the most important sectors in India as it contributes ~49% of India’s manufacturing GDP. The rural economy is the key driver of growth over the last five years. Hence, factors like changes in MSP and monsoon would have a bearing on the growth outlook. Additionally, changes in fuel prices and interest rates are also crucial for the auto sector growth given the high level of finance penetration. Moreover, freight rates also impact the commercial segment. These above factors affect the demand side of OEMs.

The OEMs profitability is also affected due to a number of external factors that the company has no control over. It includes key raw material (steel, lead, rubber, aluminum, etc.) and currency movement (as most of the raw materials are imported). Further, crude oil prices also have a bearing on the profitability of OEMs.

Key Factors to watch out for – Crude Prices, Interest Rates, Commodity prices (Steel, Aluminium, etc.), Currency Movement and Monsoon

Banking

The banking sector is undoubtedly one of the most crucial sectors in any economy. India’s banking penetration is much lower than other major economies in the world which gives room for healthy growth going forward. The banking sector is dependent on the interest rate cycle in the economy which is decided by the RBI monetary policy on a bi-monthly basis. In the short term, one can look at 10 Year G-Sec bond yields as it would give a true picture of where interest rates are heading. Apart from interest rates, the credit/deposit growth numbers released by the RBI are also important. Further, given the stringent NPA recognition practice adopted by banks, any lapse/delay from big corporates on NPA resolutions would impact the banks having exposure to those accounts.

Key Factors to watch out for – Credit/Deposit Growth, Interest Rates, and Liquidity Conditions

Cement

India is the second-largest producer of cement with a capacity of nearly 500 million tonnes per annum. The demand in the cement sector is largely led by infrastructure spending by the state/central government. The cost pressures, demand scenario and competitive intensity in the region decides the pricing. Hence, cement demand and pricing data in a particular region play an important role in analyzing cement stocks. Further, movement in crude oil and pet coke prides also have a bearing on cement stocks in India.

Key Factors to watch out for – Infrastructure spending in regions, Pricing, Crude, and other Commodity Prices

Aviation

The aviation sector is one of the fastest-growing sectors in India due to the rising working class and increased preference for air travel. The monthly data on passenger air traffic released by DGCA is one of the important factors to monitor. Further, fuel cost accounts for nearly 35% of the company’s operating cost and hence movement in crude oil prices (movement in ATF prices) and currency movement plays an important role in analyzing the aviation sector. Further, given the elevated debt levels, the movement in interest rates also plays a crucial role.

Key Factors to watch out for: Monthly passenger air traffic data by DGCA, Crude Prices (ATF Prices), Currency Movement and Interest Rates

Pharmaceuticals

India is one of the largest exporters of generic drugs and enjoys an important position in the global pharmaceuticals market. As many of these companies get their major share of the revenue from other developed markets US and Europe), the currency movement plays a major role in the profitability of these companies. Further, as the recent regulatory (US FDA) and pricing concerns have impacted the sentiments, one must also track developments on the same.

Key Factors to watch out for: Currency Movement and US FDA Announcements

Oil & Gas

The upstream (oil exploration) companies in the sector are impacted negatively by lower crude oil prices. Contrary to this, the downstream companies (distribution) are adversely impacted by higher crude oil prices as the government limits the price increase of petrol/diesel prices. Hence, the distributors have to share the burden of higher oil prices.

Key Factors to watch out for: Crude Prices, Currency movement and Regulatory changes by the government

Metals

The demand for key metals in India is likely to grow at a healthy pace led by higher government spending on infrastructure and higher vehicle production. However, the global metal prices determine domestic prices. Hence, for e.g, if global prices of zinc go up persistently than zinc manufacturers are likely to benefit from the same. Further, with metal manufacturers being a capital intensive industry, the interest rate cycle also plays a crucial role in determining the sector trend.

Key Factors to watch out for: Global commodity prices, Interest rates, and Infrastructure spending

Fast Moving Consumer Goods (FMCG)

The health of the rural economy drives the growth in the FMCG sector in India. Past trends have shown that when the rural economy does well, the FMCG sector has also performed. Hence, the factors which are key drivers for the rural economy are normal monsoon, Agri prices (changes in MSPs) and reforms by the central government. Also, interest and loan waivers are positives for the FMCG sector.

Key Factors to watch out for: Monsoon, MSP changes, Social sector schemes

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