The year 2020 has seen record net foreign inflows, at INR 1.5 lakh crore, into the Indian stock markets. This wave has been triggered by a combination of excess global liquidity, attractive domestic valuations, and overall weakness in the US dollar.
Interestingly, this trend is expected to continue, as recovery is underway in the Indian economy, which presents a vast potential consumption market. These investment flows are expected in two streams – Foreign Portfolio Investment (FPI), which will be driven by the above-mentioned developments, and Foreign Direct Investment (FDI), which could result from shifts in supply chains of multinationals.
Yet some industries and sectors of the Indian economy are more likely to benefit from this inflow. In fact, even within industries and sectors, not all companies will appear equally attractive to foreign funds. First identifying sectors and industries that are likely investment destinations and then further shortlisting companies based on more narrow investment criteria would enable investors to ride this emerging wave in 2021. Sectors that are likely to become investment magnets in 2021:
Tech has proven to be the foundation of business continuity, innovation, and growth, especially during the current predicament, across sectors and industries. The crisis has accelerated digital transformations of companies, which have begun to move ahead with greater speed and wider adoption of technology than could be perceived before the pandemic. Tech and allied industries as a broad theme will continue to perform as large and small corporates opt for greater automation, use of cloud, and seek intelligent solutions on the back of AI, Big Data, and Machine learning.
Residential real estate
The new normal has introduced remote working and showcased its advantages, beyond social distancing for safety. Reduced overall (or pre-empted) travel times, less fatigue, flexible working with a greater focus on achieving goals that clocking in hours, better work-life balance and broader benefits to the environment have been some fallouts of working from home. A number of enterprises have experienced cost reductions and greater efficiency with this new norm.
Although some industries, like manufacturing, will revert to physical workspaces, there is likely to be a greater tendency to hybrid models that blend working from home and trips to the workplace, once the pandemic is behind us. The biggest constraint in the work from home model is the lack of work sanctums in most homes. To accommodate this new trend, there is likely to be greater demand and churn in the residential real estate space, going forward.
Microlending, MSME, and other allied areas
With the trifecta – the government, financiers, and tech companies –beginning to focus on these hitherto under-emphasised sectors, which contribute greatly to the economy and sustainability of growth, there is likely to be a revolution in these sectors in the near future. Microlending, MSME, and allied areas are likely to witness an inflection in performance and would make for great investment avenues, wherever possible and in different formats.
Consumption, Logistics, and Agri-products
With signs of revival in the economy, consumption has begun to show a pick up too. The sectors that cater to mass consumption, like electronics, white goods, FMCG products, and even budget automobiles are expected to see more action. Industries that support consumption, such as e-Commerce enterprises, logistics, and agri-based firms will also rise with the tide and attract investment.
However, as mentioned earlier, not all companies in these sectors will appear equally attractive to capital. While every company will have its own micro-level strengths and challenges, there are some attributes that could be used for further screening.
- Tech-enabled – Irrespective of industry and sector, companies that have equipped themselves with technology at various levels will deliver greater efficiencies and therefore, draw capital investment.
- ESG –Global capital markets have tended to reward Environment, Social, and Governance conscious companies with confident, stable capital. This trend is growing stronger as awareness grows.
- Agility and innovation with stability – Last but not least, capital flocks to stocks and companies that appear to have their act together while still demonstrating that they can think quickly on their feet. Management machinery that has a track record of waiting and watching for too long may miss the capital bus.
All things considered, 2021 appears to be an exciting year, with disruption being the norm rather than a transitory phenomenon, as the definition suggests. While following global capital investments, it still pays to take a closer look at potential investment targets, through the lenses of one’s own financial values and compulsions, and investment tenures.