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Stock markets follow the evolution of an economy. Like clockwork, every decade witnesses this evolution with a new wave of wealth creators. To give you some examples:

• 1990s: the birth of new private sector banks. Among the newcomers, HDFC Bank and ICICI Bank launch their IPOs
• 2000s: IT services show initial promise. Investors discover Infosys (price: INR 102 in Jan 2000) and TCS (lists at Rs. 120 in 2004)
• 2010s: Jio launch accelerates the telecom revolution; massive scale-up in automobiles; new wave of financial companies rapidly scale

What happens next? Where does this evolution take us? What sectors and companies will find their way to India’s most tracked benchmarks?

Most importantly, how can you prepare and benefit from the next wave of wealth creation?

Let’s dive in.

A global wave hits India’s shores

Here’s a quick context for you:

1. New-age businesses are attracting significant capital flows globally
2. Value continues to shift from traditional to new-age businesses as adoption increases and these companies mature
3. New-age businesses with demonstrated success have created massive shareholder value

This has played out for the US (NASDAQ: 2000-21) and China (2014-20) – trillions of dollars of wealth got created. The weightage of new-age companies in S&P 500 has gone up from 13 percent in 2005 to 42 percent in 2021; and that for Hang-Seng index from <1 percent to 31percent over the same period. 

Advantage India: world’s largest connected “open” marketplace

1. Beginning of a similar story unfolding – widespread adoption has accelerated
2. Supported by world-class digital infrastructure – powered by ambitious entrepreneurs and a disruptive government
3. Massive ecosystems of commerce are being powered by the “India stack”

• Digital identity
• Cashless economy | Financial inclusion
• Data democratization
• Health
• Digitization of public services… and a lot more being unveiled at rapid pace

Over $ 280 billion private equity invested in India by global investors over the last 12 years. India’s unicorns are now worth over $ 250 bn!

Indian capital markets are now at the threshold of a remarkable transition; our indices will make space for the new and hopefully, very valuable new-gen companies.

A beautiful transition of India’s equity markets has just begun – one that will see a wave of new-age companies moving from being private to becoming public. And in the process, unleashing opportunities for India’s investors to participate in unprecedented wealth creation.

What will this transformation look like? Will Indian markets see the rise of companies like Microsoft or Apple, or the likes of Alibaba and Tencent? Or will the nuances of India’s consumers determine the nature of companies that thrive?

How can investors prepare and benefit? We are today witnessing the beginning of a paradigm shift. Several large trends are now visible and others are still “bets”. As investors, we need to equip ourselves now to start forming views of the future. This involves finding answers to questions like:

• What sectors will see most disruption?
• What kind of new-age companies could create most value?
• How could existing companies cope and flourish?
• What will be the impact on stock markets?
• What investment products and solutions can I consider to benefit from this change?

Industries of the future: the India nuance

The above is a brief illustration on select sectors to depict how the Indian business dynamic is distinct from the global business models. No doubt, we will have our own categories of winners take all models, but these could scale and be valued very differently with an Indian nuance.

Let’s discuss five big themes that could explode into our investment realm over the next five years:

How we commute: world’s largest 2-wheeler EV (electric vehicle) market

The entire EV value chain is being created in India. This will be largely made in India for not only Indian consumers but for the world.

From a negligible size,today (<1 percent of all 2W sales), the EV market in India by 2026 is expected to grow to $ 45-50 bn, scaling to $ 150-200 bn by 2030.

EV sector presents an opportunity as exciting as the birth of the automobile industry in the 1980s (with the arrival of Maruti).

This EV ecosystem will spawn:

• Manufacturing of 2W EVs
• Battery: charging infra; production; marketplaces offering multiple solutions – buy/ rent/ swap
• Electronics and accessories
• Service enterprises
• Tech-stack: connected vehicles; battery management; app-ecosystem
• Financing and Insurance

Clean Energy: the sun shines bright!

India is targeting about 450 Gigawatt (GW) of installed renewable energy capacity by 2030 – about 280 GW (over 60 percent ) is expected from solar. As of September 2021, India had 101 GW of renewable energy capacity that represents ~38 percent of the overall installed power capacity.

About $ 70 billion has been invested in solar energy over last five years. The sector represents an investment opportunity of $ 15-20 billion per year over the next 5-10 years.

This massive ecosystem will spawn:

• Manufacturing of solar panels, sensors and electronic components
• Engineering and construction
• Direct to consumer products and services
• Financing, insurance

Education-tech: democratising learning for Indians and teaching the world!

Size of the EdTech (K12) market in FY2020 was $ 350 mn, expected to grow almost 8x to $ 3 bn in 2025. Size of the overall online higher education and lifelong learning market was $500 mn in 2020 and expected to scale to $4 bn by 2025.

The growth of ed-tech could be like the growth of our IT industry through the 1990s and 2000s – where companies deploy a combination of high-quality content, highly skilled professionals (teachers) and lower-cost structure – to win global market-share.

By serving a much larger market at higher billing rates, India’s ed-tech companies can massively scale over the next 5-10 years.

Health-tech: built for India… delivered to the world

2020: $1.9 billion, or under 1 percent of the healthcare industry.

Zoom out to 2030: with over 5,000 health-tech startups, estimated to grow at a compound annual growth rate (CAGR) of 40 percent to scale to $ 40-50 billion by 2030.

With the launch of Ayushman Bharat, India will witness a birth of a unique health-stack for her citizens. This in turn will lead to the creation of multiple ecosystems and marketplaces:

• E-pharmacies
• Digitally enabled medical hardware, devices, wearables
• Deep tech solutions: AI and ML led solutions for diagnosis and medical advice
• Tele-medicine
• Personalised health insurance products

A digital-agricultural revolution

Studies peg this potential of this sector between $25-35 billion by 2025.

India currently has over 1,500 agriculture startups, which are actively employing artificial intelligence (AI), machine learning (ML), internet of things (IoT), etc.

The various segments within the agritech industry, which support the overall value chain are:

• Market linkage for farm inputs: digital marketplaces and physical infrastructure to link farmers to inputs.
• Biotech: research on plant and animal life sciences and genomics.
• Farming as a service: farm equipment for rent on a pay-per-use basis.
• Precision agriculture and farm management: use of geospatial or weather data, IOT, sensors, robotics etc. to improve productivity
• Farm mechanization and automation: industrial automation using machinery, tools and robots
• Digital supply chain tech and output market linkage

A framework for investing in new-age business

The above #5 trends will have a massive impact not only on our quality of lives but will also on how and where we invest!

Today, over 90 percent of India’s best new-age companies are held by foreign capital (predominantly through private equity funds). As our equity markets welcome more of such companies to list (go IPO), investors will soon have several investing options to select from.

Before you jump in and are lured by newly minted jargon (CAC, MAU, LTV, cash-burn…), it’s important to prepare yourself:

• Develop your awareness and knowledge of trends
• Differentiate between copycats and winners – just because a nature of companies is successful in global markets (US, China) doesn’t mean similar models will find success in our market.
• Delve deeper into financial metrics to understand long-term drivers of financial success

Several products are today available to Indian investors to access these opportunities. Here’s how you can evaluate:

• Find expert fund managers who have a demonstrated success in investing in such themes
• Create an allocation from your portfolio to financial products that invest in new-age businesses:
• Unlisted investments through private equity: venture capital, late-stage, pre-IPO
• Listed equities: IPO, thematic funds/ ETFs
• Fixed income + equity upside: venture debt funds
• Before you invest, understand the following parameters:
• Ensure the products you consider are regulated (governed by SEBI)
• Risk of volatility and drawdowns
• Illiquidity – many of these products are closed-ended
• Cash flow periods

Happy investing!