While financial year 2018-19 was marked by the return of volatility, FY 2019-20 begins with conversion of most macro headwinds into tailwinds. Even though a global slowdown remains a threat, Indian growth is expected to be resilient, largely driven by domestic factors. The IMF expects India to grow at 7.5 per cent in FY 2019-20. In comparison, China is expected to clock a lower growth rate of 6.2 per cent in 2019.
More than economic factors, the market is, at present, worried about the impact of political events on equities. Stock markets have recently started to price in a higher probability of the incumbent government getting re-elected, which lends an upside to equities.
Despite scope of volatility remaining high, investors can benefit from buying equities for the long term from a few niche segments that are expected to do well in FY 2019-20 and beyond.
Growth in FY 2019-20 will be led by a growth in capex in the economy. Hence, the capital goods sector is set to benefit. Larsen & Toubro is a leader in the sector, with a strong order book, proven execution capabilities and firm strategic plan to double sales, and improve margins and ROE.
Banks too are in a sweet spot as loan demand, especially from corporate, are likely to rise. The State Bank of India and ICICI Bank are well placed to benefit from this.
The Indian grid is shifting its major installations from LV cables to HV/EHV cables with new and improved technologies. Major focus towards installation of 400/765KV lines would lead to transfer of more power with reduction in ATC losses. With major focus on high capacity cables, manufacturers like KEI industries Limited, Havells India Limited and Finolex Cables Limited can benefit from these opportunities. Also, the transmission EPC players like KEC International Limited and Kalpataru Power Transmission Limited will be benefit with higher order inflows.
As the IT space evolves rapidly, companies brace for Business 4.0 with capabilities in new age technologies like Cloud, VR/AR, machine learning, IoT and AI. Infosys, Tech Mahindra and TCS are likely to benefit in this segment.
According to a research by Accenture, artificial intelligence can potentially add $957 billion to the Indian economy and increase the annual growth rate of gross value added, thereby increasing the country’s income by 15 per cent in 2035. Infosys, for instance, is working on NIA, a chatbot which can provide customers with on-demand access to enterprise knowledge by interfacing with the enterprise knowledge repository and enabling a conversational interface. TCS’s IGNIO AIOps is a unique cognitive automation solution, which can solve pain points by identifying the source of problems and fixing the problems automatically.
In the auto segment, electric vehicles are the next big thing in disruptive technology. Transportation is responsible for approximately 11 per cent of entire carbon emissions in India and is a major factor behind worsening air quality across the country. Incremental acceptance of electric vehicles across the country can make the difference to overall air quality.
Though there will be initial hiccups with regards to charging stations and maintenance of batteries, Mahindra & Mahindra is one company which has developed expertise with its electric car Reva NXR since 2011 and has also introduced a makeover E2O. This gives it an edge over other automobile companies in India. Ashok Leyland is another company which is manufacturing electric busses in India. There is significant potential in these stocks in the long term. Investors can also look at back-end technology providers for EVs like Tata Elxsi, KPIT Engineering who are expected to benefit largely from the emergence of EVs.
FY 2019-20 is likely to be a good year for equity investors. While the segments highlighted above are not exhaustive, these are likely to be on investors’ minds as the year progresses and investing in these should help them grow wealth.
The author is CEO, Karvy Stock Broking