Aditya Birla Sun Life Asset Management Company, which manages assets worth Rs 2.6 lakh crore, has identified digitalisation, manufacturing, real estate, mid and small caps and sustainability as the five key trends that are expected to play out in the coming three to five years.
As part of the latest edition of its annual Trendspotting report, the fund house has analysed the key trends in the last couple of decades to identify the trends of the future and the sectors that stand to benefit from them. The study was done by the Alternate Assets Equity Investments team of the fund house.
Revival in Mid & Small Caps
The fund house is of the view that since the mid-cap and small-cap space has underperformed the large-caps for three years, it is time the side-counters start outperforming their larger counterparts.
The fund house believes that factors like economic recovery, lower interest rates, and increased representation in emerging sectors like chemicals, digital platforms would be the key drivers for the revival of mid-and small-cap stocks.
The BSE Midcap and BSE Smallcap indices vastly underperformed the benchmark S&P BSE Sensex in the two consecutive years -- 2018 and 2019 -- when both the broader indices registered losses even as the 30-share Sensex closed in positive territory in each of the years.
The trend has changed, however, as the BSE Midcap and BSE Smallcap indices outperformed the benchmark last year and even in the current calendar year, they have fared much better than the main barometer.
In the current calendar year, the BSE Midcap and BSE Smallcap indices have gained nearly 28% and 46%, respectively, while the Sensex is up nearly 10%.
The report highlighted the fact that small-cap valuations have fallen below their long-term averages and are expected to move up with a gradual revival in the economy. For category leaders, "this is an opportunity of the decade to further entrench their dominance and accelerate market share gains, as unorganized competition suffer."
According to the study, there has been significant growth in the digital payment ecosystem in the last 3-4 years even as overall digitalisation in India fast-tracked due to the low cost of data, government initiatives like Aadhaar, UPI, and increased adoption by the corporate sector to improve productivity.
Citing statistics by global consulting major McKinsey, the report stated that newly digitising sectors, including agriculture, education, energy, financial services, healthcare could each create $10 billion to $150 billion of incremental economic value in 2025 as digital applications help raise output, save costs and time, reduce fraud, and improve the matching of demand and supply.
The fund house listed entities like Policybazaar, PayTM, Razorpay, Zerodha, Jubilant Foodworks, Just Dial, Indiamart, IRCTC, Infosys, Happiest Minds, Infoedge and Reliance as some of the direct and indirect beneficiaries of digitalisation.
Cyclical Revival in Real Estate
According to the study, affordability has improved significantly in the last three years due to a combination of factors like price correction, lower interest rates and decreasing unit size. Further, the falling spread between the adjusted home loan rate and rental yield could push people towards buying a house, it added.
The fund house is of the view that demand has bottomed out and is now expected to improve given the higher affordability.
"Low-interest rates, COVID-19 induced work from home trend and industry consolidation induced by RERA and availability of capital to larger players should lead to a revival in real estate and ancillary sectors like building materials," it said.
A revival in the real estate sector is likely to benefit a host of other sectors as well including cement, home furnishing, insurance, consumer durables, building materials and electrical products among others.
Some of the companies that stand to gain are HDFC, Bajaj Finserve, Voltas, SBI Life, Whirlpool, Godrej, Havells, Asian Paints, Ultratech Cement and ACC, as per the report.
Rising risks from the environment are pushing government and companies to adopt a more sustainable way of doing business through green fuel, green technologies, and green mobility, stated the report.
It further highlighted a World Bank report, which stated that climate change could result in more than 100 million additional people living in poverty by 2030, crop yield losses reaching as high as 5% in 2030, & 30% in 2080, resulting in higher food prices and warming of 2-3 ? could risk for malaria up to 5% and diarrhoea up to 10% by 2030.
With a focus on factors like green energy like wind and hydro, health, clean technology and sustainable businesses, companies like Dabur, Marico, Sanofi, Abbott, Tata Power, Mahanagar Gas, Thermax and GE Power among others could benefit, stated the report.
The rise of domestic manufacturing
According to the report, push for Atmanirbhar Bharat should drive domestic manufacturing, private capex, import-substitution, and exports. It further added that the share of manufacturing in the country's GDP was in the range of 14-15% for many decades but that could increase to 25% on the back of government initiatives like Atmanirbhar Bharat and Vocal for Local.
The study highlighted the fact that the government has cut corporate tax rates, while increasing the import duties on finished goods and components.
Further, the performance-linked incentive scheme with a total outlay of around Rs 2 lakh crore spread over 13 sectors along with incentives on incremental sales and policies incentivising downstream production is likely to give a fillip to the domestic manufacturing sector, stated the report.
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