Stock investors generally come up with an aphorism that encapsulates their investing philosophy. It may or may not imply that they have an edge in the market, but at least it tells you that their mistakes (and everyone makes them) are not fatuous.
Amit Jeswani of Stallion Asset is quite averse to value investing and likes to quip that he finds “value in growth”. He seems visibly excited when he reminds you that it took India 70 years to reach a $2.5 trillion economy, but will take only around 7-8 years to touch $5 trillion. To ensure that you capitalize on this rapid growth, he recommends catching a trend and riding that wave.
Here’s what he says about sector trends that investors need to get on their radar.
While 2-wheeler sales in India have exceeded those in China, in FY18, India sold 33 lakh passenger cars as against 2.4 crore in China. Imagine the potential! The need for mobility is huge in India, added to the fact that we are in one of the fastest growing economies.
Over the next decade I am confident that India will sell 1 crore+ cars and the average ticket size of a sale would increase significantly too.
Worth noting is that out of the above mentioned 33 lakh cars, more than 50% were sold by Maruti alone.
While the opportunity is humungous, I would like to break it into three sub-sectors.
The Indian insurance industry is expected to grow to $280 billion by FY2020, owing to the solid economic growth and higher personal disposable incomes in the country.
It is but natural that in a nation that has witnessed such economic growth, the insurance sector will evolve to aid the risk-taking ability of the country. That is why I believe this to be a multi-year theme, ranging from life insurance, auto insurance, health insurance, home insurance, crop insurance, even cell phone insurance. It encapsulates every aspect of our lives.
Not only do I see the insurance market grow by 15-17% annually, but a large market share transfer from public sector insurers to private players. I do believe private insurers can grow 20%+ for a prolonged period of time.
India has the key ingredients of a high-growth wealth management market; a growing young mass affluent segment, an increase in the wealth of global Indians, higher personal disposable incomes. Yet the market is underestimating the financialization of savings as a theme.
The total profit pile of the top 5 Asset Management Companies, or AMCs, that corner 57% of the market share of the mutual fund industry, was Rs 1,800 crores in FY17. Sounds impressive when viewed in isolation. But now compare it to certain hedge funds in the U.S. and it pales significantly.
Institutional Investor carried a post on the top earning hedge fund firms of all time tracking the numbers since each firm’s inception. In 2017, the net gains of some players were: Bridgewater Associates – $300 million, George Soros – $2.1 billion, Citadel – $3.4 billion, Lone Pine Capital – $5 billion, to name just a few. This is just to give a perspective. Even a midsized popular hedge fund would make more profits than the entire Indian asset management industry.
I have absolutely no doubt that the profit pool will grow multi-fold in next 5-10 years and there will be massive wealth created in this space.
Lending The top 45 business houses in India corner around 50% of the country’s banking debt. Retail credit is woefully under-penetrated – be it micro finance, lending to small and medium enterprises (SME), consumer finance, affordable home loans, or agri-credit.
The cream of India’s population is well banked and the massive opportunity now rests on the lower ticket size retail lending, which comprises 80% of the population. The typical small ticket size loans have higher NIM spreads. This is a trend to watch out for.
India’s credit needs will grow at 15-16%, whereas smart private bankers or non-banking financial companies (NBFC) can grow faster at 20-30% per annum over the next 7-8 years. There is an opportunity to grow their loan book by 3-5x with ease.
Thanks to global warming we have no choice but get acquainted with intense summers. Why not look for a way to profit from it?
You may be surprised to know that only 4% of Indian households have an air conditioner. But it may not surprise you to realise that ACs are the first appliance people want to buy when they cross a certain income threshold. India is poised for an explosion in air conditioning.
In China, the penetration of air conditioners grew from 8% in 1995 to 70% in 2004.
Voltas is the market leader with 24% market share. The company sold posted a profit of Rs 650 crores in FY18 and has a market cap of Rs 20,000 crores. A decade down the road, I have no idea what the company’s profits will be but am confident that India’s penetration of ACs will be a minimum 15%.
LARGE FORMAT RETAIL STORES
There are 3,700 Tesco stores in the U.K. and 4,100 Walmart stores in the U.S. The population of U.K. is around 6 crores and that of U.S., 32 crores.
Now compare that with the situation in India. We have 155 D-Mart stores and 260 Big Bazaars and a population of 125 crores. Organised retail in such formats have a strong appeal for the urban middle class.