Stock markets follow the evolution of an economy. Like clockwork, each decade witnesses this evolution with a new wave of wealth creators. To give you some examples:
- 1990s: Birth of new private sector banks. Among the new entrants, HDFC Bank and ICICI Bank launch their IPOs
- 2000s: IT services show promise. Investors discover Infosys (price: INR 102 in January 2000) and TCS (listings at Rs. 120 in 2004)
- 2010s: the launch of Jio accelerates the telecommunications revolution; massive scaling in automobiles; new wave of financial companies is growing rapidly
What happens next? Where is this development taking us? Which sectors and companies will find their way to India’s most followed benchmarks?
More importantly, how can you prepare for and benefit from the next wave of wealth creation?
Let’s dive into it.
A global wave is sweeping over Indian shores
Here’s a quick background for you:
- New Era Companies Attract Large Capital Flows Globally
- Value continues to shift from traditional businesses to new era businesses as adoption increases and these businesses mature
- New-era companies with demonstrated success have created massive shareholder value
This happened in the US (NASDAQ: 2000-21) and China (2014-20) – billions of dollars of wealth were created. The weight of new-age companies in the S&P 500 has increased from 13% in 2005 to 42% in 2021; and that of the Hang-Seng index from
Advantage India: the largest “open” connected marketplace in the world
- The beginning of a similar story unfolds – widespread adoption has accelerated
- Backed by world-class digital infrastructure – powered by ambitious entrepreneurs and disruptive government
- Massive trade ecosystems are powered by the “Indian stack”
- Numeric identity
- Cashless economy | Financial inclusion
- Democratization of data
- Digitization of public services… and much more unveiled at a breakneck pace
Over $280 billion in private equity invested in India by global investors over the past 12 years. India’s unicorns are now worth over $250 billion!
Indian capital markets are now on the threshold of a remarkable transition; our indices will make room for new, next-gen and hopefully very valuable companies.
A beautiful transition in Indian stock markets has just begun – one that will see a wave of new era companies move from private to public company status. And in the process, unlocking opportunities for Indian investors to participate in unprecedented wealth creation.
What will this transformation look like? Will Indian markets see the rise of companies like Microsoft or Apple, or Alibaba and Tencent? Or will the nuances of Indian consumers determine the nature of businesses that thrive?
How can investors prepare and profit? Today we are witnessing the beginning of a paradigm shift. Several major trends are now visible and others are still “bets”. As investors, we need to equip ourselves now to start building a picture of the future. This involves finding answers to questions such as:
- Which sectors will see the most disruption?
- What kind of new-age companies could create the most value?
- How could existing businesses cope and thrive?
- What will be the impact on stock markets?
- What investment products and solutions can I consider to benefit from this change?
Industries of the future: the Indian nuance
The above is a brief illustration of some sectors to depict how Indian business dynamics differ from global business patterns. Undoubtedly, we will have our own categories of winners for all models, but these could evolve and be evaluated very differently with an Indian nuance.
Let’s discuss five big themes that could explode in our investing space over the next five years:
How We Move: The World’s Largest 2-Wheeled EV (Electric Vehicle) Market
The entire EV value chain is being created in India. It will largely be made in India not only for Indian consumers but for the whole world.
Negligible in size today (
The electric vehicle sector presents an opportunity as exciting as the birth of the automotive industry in the 1980s (with the arrival of Maruti).
This ecosystem of electric vehicles will generate:
- 2W EV manufacturing
- Battery: charge infra; production; marketplaces offering multiple solutions – buy/ rent/ trade
- Electronics and accessories
- Service companies
- Tech-stack: connected vehicles; battery management; App-ecosystem
- Financing and Insurance
Clean Energy: the sun shines brightly!
India aims approximately 450 Gigawatt (GW) of installed power renewable energy capacity by 2030 – about 280 GW (more than 60 percent) is expected from solar power. As of September 2021, India had 101 GW of renewable energy capacity, representing about 38% of total installed power capacity.
About $70 billion has been invested in solar power over the past five years. The sector represents an investment opportunity of $15-20 billion per year over the next 5-10 years.
This massive ecosystem will generate:
- Manufacture of solar panels, sensors and electronic components
- Engineering and construction
- Direct-to-consumer products and services
- Financing, insurance
Education-tech: democratize learning for Indians and teach the world!
EdTech (K12) market size in fiscal 2020 was $350 million, expected to grow nearly 8x to reach $3 billion in 2025. The overall market size of higher education and online lifelong learning was $500 million in 2020 and is expected to reach $4 billion. by 2025.
The growth of ed-tech might resemble the growth of our IT industry in the 1990s and 2000s – where companies deploy a combination of high-quality content, highly skilled professionals (teachers) and lean structure. cost – to gain global market share.
By serving a much larger market at higher billing rates, Indian IT companies can scale massively over the next 5-10 years.
Health-tech: built for India…delivered to the world
2020: $1.9 billion, or less than 1% of the health sector.
Zooming out to 2030: With over 5,000 health tech startups, estimated to grow at a compound annual growth rate (CAGR) of 40% to reach $40-50 billion by 2030.
With the launch of Ayushman Bharat, India will witness the birth of a unique healthcare stack for its citizens. This in turn will lead to the creation of multiple ecosystems and marketplaces:
- Medical equipment, devices, digital wearables
- Deep Tech solutions: AI and ML-based solutions for diagnostics and medical advice
- Personalized health insurance products
A digital-agricultural revolution
Studies estimate the potential of this sector between 25 and 35 billion dollars by 2025.
India currently has more than 1,500 agricultural startups, actively using Artificial Intelligence (AI), Machine Learning (ML), Internet of Things (IoT), etc.
The different segments of the agritech industry, which support the entire value chain, are:
- Market linkages for agricultural inputs: digital marketplaces and physical infrastructure to connect farmers to inputs.
- Biotech: research on plant and animal life sciences and genomics.
- Farming as a service: Farm equipment for rent on a pay-as-you-go basis.
- Precision agriculture and agricultural management: use of geospatial or meteorological data, IOT, sensors, robotics, etc. to improve productivity
- Agricultural mechanization and automation: industrial automation using machines, tools and robots
- Link between digital supply chain technology and the product market
A Framework for Investing in New Era Businesses
The #5 trends above will have a massive impact on not only our quality of life, but how and where we invest!
Today, more than 90% of India’s top new-age companies are foreign-owned (mainly through private equity funds). As our stock markets welcome more and more such companies to list (go public), investors will soon have several investment options to choose from.
Before you start and let yourself be seduced by fresh jargon (CAC, MAU, LTV, cash-burn, etc.), it is important to prepare yourself:
- Develop your awareness and knowledge of trends
- Differentiate between imitators and winners – just because the nature of companies succeeds in global markets (US, China) does not mean that similar models will succeed in our market.
- Dive deeper into financial metrics to understand the long-term drivers of financial success
Several products are now available to Indian investors to access these opportunities. Here’s how you can assess:
- Find expert fund managers who have demonstrated success investing in such themes
- Create an allocation of your portfolio to financial products that invest in new era companies:
- Unlisted investments via private equity: venture capital, late-stage, pre-IPO
- Listed equities: IPOs, thematic funds/ ETFs
- Fixed Income + Equity Rise: Venture Debt Funds
- Before investing, understand the following parameters:
- Make sure the products you are considering are regulated (governed by SEBI)
- Volatility and drawdown risk
- Illiquidity – many of these products are closed
- Cash periods