Industry analysis

People keep talking about great Indian (and China) juggernaut, that is taking these economies into new sphere. This is one camp. Another camp feel that great “India-shining” story is a hype. People comprising these camps are mostly Economists, Stock analysts, Businessmen and Politicians. I bet my two cents for the case somewhere in between these two camps. Perhaps little more biased towards the former. This is what I think about some of the industries:

1. IT industry: Most of the success has come because of outsourcing from the western world. If the “India/China” story is true, Rupee factor is going to haunt the Industry. Companies catering to developing economies can foster since the market size will be big but “20% salary hikes” may not work out. Companies in higher value chain and with competitive advantage will have pricing power and hence may do well. Economy of the industry can change drastically. The effects will be seen much later. And as theory of evolution says, only the fittest will survive. IMO, the inflexion point is going to come very soon in this Industry or we may be already in it.

2. Logistics: India spends more proportion of GDP in transporting and supply chain than most of the countries. This is leading to a very systematic Logistics Industry with most of the companies outsourcing their logistics need to logistics companies. This will help companies in saving some cost by outsourcing to more efficient companies specialized in doing this stuff.

3. Cement/Steel/Pharma/FMCG/Consumer Durables – I dont see big change in these industries. With more consumers and more purchasing power, all these may do ok.

4. Premium Segments: There is new market coming up for luxury products. And contrary to what we may feel, it is not limited to Metro cities. I heard Merc sells more cars in Ludhiana than any other city in India. Be it slim TVs, ACs, Cars, Clothes, beauty products, companies capturing the nerves of consumer can strike it big.

5. Agriculture: There are lots of problems in Indian agriculture. Companies with right business model can solve these problems and generate lot of profits too. Check out my previous post

6. Education: After being neglected for so many years, recently education sector has become very hot. And when something becomes hot, imitators follow innovators and then come the incompetents. And the best example of this would be the following industries.

7. Real Estate/Infrastructure/Power/Telecom: Lot of people trying to solve the same problem. Result: lower profit margins. Only the companies with Moat will do well.

8. Entertainment: If we go by the numbers of IPL, there is lot to come in this sector.

I might have left out lot of other industries. Will add to this if I remember something later.

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