The key to successful investing over a long period is the ability to spot trends early, and the themes that may generate better returns for investors over the next three-five years are manufacturing, digitalization, sustainability, cyclical recovery in the real estate sector and a revival in the mid- and small-cap stocks, according to a study by Aditya Birla Sun Life AMC Ltd.
The asset management company (AMC) has captured insights on key sectoral trends over the past two decades and applied the insights from this research to arrive at the trends that may play out over the next three to five years in its annual Trendspotting report.
“Looking at data since 2002, the top five performing sectors vary greatly in each market cycle. The variation in returns among the best- and worst-performing industries during a cycle is too large, again underscoring the importance of picking the right themes,” said A. Balasubramanian, managing director and chief executive officer, Aditya Birla Sun Life AMC. According to the mutual fund house, different trends have rewarded investors at different points of time in the past.
The infrastructure theme played out during 2003-08, export sectors during 2011-15, consumption story during 2016-20, chemicals during 2016-19 and non-banking financial companies during 2014-19.
For the future, Aditya Birla Sun Life AMC believes that manufacturing is likely to benefit from a mix of push and pull factors to drive local production in India such as ‘Atmanirbhar Bharat’ and ‘Vocal for Local’ initiatives by the government, along with diversification of global supply chains.
The next theme is digitalization. “India has fast-tracked digitalization due to low cost of data, government initiatives such as Aadhaar, UPI and increased adoption by the corporate sector to improve productivity,” the fund house said in the report.
ESG or environmental, social and corporate governance (ESG) as a theme has gained prominence over the past few years as investors have become conscious of these issues to help manage investment risks.
Aditya Birla Sun Life AMC said that rising risks from the environment are pushing the government and companies to adopt more sustainable ways of doing business through green fuel, green technologies and green mobility.
Recently, India’s biggest company in terms of market capitalization, Reliance Industries Ltd, had pledged to invest ₹75,000 crore in clean energy.
Meanwhile, a report by Morningstar India highlighted that assets under management (AUM) of Indian sustainable funds nearly tripled to ₹11,970 crore at the end of 30 June against last year.
The next theme identified by Aditya Birla Sun Life AMC is real estate. “Low-interest rates, covid-induced work-from-home trend and industry consolidation induced by Real Estate (Regulation and Development) Act (Rera) and the availability of capital to larger players should lead to a revival in real estate and ancillary sectors such as building materials,” the report said.
Lastly, the fund house believes that after three years of underperformance, mid-cap and small-cap stocks are likely to outperform large-caps, led by economic recovery, lower interest rates, and increased representation in emerging sectors such as chemicals and digital platforms, among others.
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