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Investment Seen Powering Growth in ’24

Analysis of Expected Economic Growth in India in 2024

Source and Citation: Originally reported by ET Bureau for Economic Times on January 1, 2024.

Layman’s Overview

The article predicts that India’s economic growth in 2024 will be primarily fueled by a surge in private and public investments. GDP (gross domestic product), representing the total value of goods and services produced, is the key indicator, signaling economic expansion. The second quarter (Q2) encompasses July, August, and September, marking a crucial period in India’s fiscal year.

Capacity utilization gauges the extent to which factories and machinery are operating compared to their potential output. A range of 80-90% suggests a potential need for additional investments to expand capacity. Capex (capital expenditure) reflects funds invested by companies to upgrade equipment and facilities, indicating confidence and commitment to growth.

Infrastructure sectors like cement, steel, and Production-Linked Incentives (PLIs) are expected to witness increased private investment. PLIs encompass government subsidies and tax breaks, promoting local production. Overall, heightened investment leading to GDP growth is anticipated to boost job creation, increase income levels, and enhance rural consumption demand.

Investment Seen Powering Growth in ’24

Impact on Retail Investors

For retail equity investors, the positive outlook in 2024 indicates potential growth in corporate earnings. Emphasis should be placed on stocks and sectors poised to benefit. Infrastructure stocks, particularly in cement, steel, and construction, could attract strong interest. Companies receiving PLI incentives in electronics, telecom manufacturing, solar modules, and specialty steel may also be lucrative.

Banking and financial services stocks stand to benefit from increased business investments and economic activity. However, defensive sectors like IT services and pharmaceuticals might underperform if risk appetite improves. Investors are advised to consider reallocating funds towards high-growth industries.

Impact on Industries

Infrastructure

Higher public spending and increased private investment in roads, railways, ports, and water management present significant opportunities for builders, contractors, and engineering companies. Order inflows for companies like Larsen & Toubro, Thermax, and KNR Constructions may witness substantial growth.

Real Estate

The expansion in infrastructure-related sectors, including cement and steel, contributes to increased real estate activity. Demand for commercial and residential spaces is expected to rise, benefiting major players such as DLF, Oberoi Realty, and Godrej Properties.

Automobiles

Rising investment and consumer spending, coupled with infrastructure projects, are anticipated to drive growth in the auto sector. Commercial vehicle makers like Tata Motors and Ashok Leyland, along with two-wheeler manufacturers, may experience accelerated volume growth and increased profits.

Long Term Benefits & Negatives

The economic expansion driven by capex investment over 2023-24 positions India for sustainable long-term growth. Positive structural impacts include the ripple effects of infrastructure building, reduced dependence on imported inputs through incentive schemes, and increased capacity building supporting GDP growth over the next 5 years. However, risks persist, such as potential global economic downturns affecting exports and geopolitical conflicts leading to elevated crude oil prices and inflation.

Short Term Benefits & Negatives

Near Term Upside

Analysts estimate GDP expansion of around 6.8% in the fiscal year 2023-24, surpassing the RBI’s projection. Infrastructure and real estate investments may experience over 10% year-on-year growth, benefiting construction, cement, and steel sectors. Automobile sales volume is expected to reach previous peak levels by mid-2024.

Short Term Risks

Global headwinds, including a severe global slowdown, coal shortages impacting power supply, and geopolitical conflicts sustaining high energy costs, pose risks. Elevated retail inflation leading to high-interest rates may impede recovery, particularly for small businesses.

Growth estimates for 2024-25 are contingent on the uncertain global economic situation, with potential shocks capable of disrupting the recovery momentum.

Companies Impacted by Increased Investment in India (2024)

Indian Companies Likely to Gain:

  1. Infrastructure Leaders:

    • Larsen & Toubro (L&T): Major infrastructure player with diverse portfolio in construction, engineering, and manufacturing. Rising infrastructure spending will boost project orders and revenue.
    • Dilip Buildcon: Focuses on roads and highways, directly aligned with government’s infrastructure push. Improved rural connectivity can increase project opportunities.
    • ACC Ltd. & Ambuja Cements: Cement demand rises with infrastructure activity. Increased government spending on rural infrastructure and housing can further drive demand.
  2. Capital Goods Manufacturers:

    • Bajaj Electricals: Strong presence in power transmission and distribution equipment. Increased electrification in rural areas due to government spending can boost demand.
    • Thermax Ltd.: Diversified engineering company with expertise in boilers, waste heat recovery, and water treatment. Growing focus on sustainability in infrastructure projects can benefit these segments.
  3. Building Materials Players:

    • Asian Paints & Berger Paints: Paints are essential for new construction and renovation activities. Rural spending increase can drive demand, especially in Tier 2 and 3 cities.
    • Jindal Steel & Power: Leading steel producer. Higher infrastructure spending translates to higher steel demand, benefiting the company.
  4. Automobiles & Ancillary Sectors:

    • Maruti Suzuki & Tata Motors: Increased rural spending can lead to higher demand for passenger vehicles, especially budget-friendly models.
    • Exide Industries & Amara Raja Batteries: Growing vehicle demand translates to higher battery demand, benefiting these manufacturers.
  5. Banks & NBFCs:

    • HDFC Bank & ICICI Bank: Increased economic activity leads to higher loan demand from corporates and individuals. Rural spending growth can boost retail loan portfolios.
    • Bajaj Finance & Mahindra Finance: NBFCs play a crucial role in rural lending. Increased rural spending and government focus on financial inclusion can drive loan growth.

Market Sentiment: The news is likely to be positive for the mentioned companies, leading to potential stock price appreciation due to anticipated increase in revenue and profitability.

Indian Companies Potentially Facing Headwinds:

  1. Consumer Staples Companies:
    • Hindustan Unilever & ITC Ltd.: Increased rural spending might favor discretionary spending over essential staples, impacting sales growth.
  2. Pharmaceutical Companies:
    • Cipla & Dr. Reddy’s Laboratories: Increased government focus on infrastructure might divert spending away from healthcare in the short term, impacting growth.

Global Companies:

Gainers:

  • Construction equipment manufacturers (Caterpillar, Komatsu): Increased infrastructure spending in India offers new market opportunities.
  • Engineering and design firms (Jacobs Engineering, Fluor): Expertise in large-scale infrastructure projects can attract contracts from Indian players.
  • Commodity producers (BHP Billiton, Rio Tinto): Rising steel and cement demand in India can boost global commodity prices.

Losers:

  • Companies heavily reliant on Chinese imports (Apple, Walmart): Increased government focus on domestic manufacturing in India might hinder imports, impacting some sectors.
  • Companies primarily focused on developed markets: India’s economic growth might divert investment away from other markets, potentially impacting their growth.

Note: This analysis is based on the provided information and is not exhaustive. Market dynamics and individual company performance are subject to various other factors. It is recommended to conduct further research and consult financial professionals before making investment decisions.

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