Welcome back to our latest edition of Market Insights with Sanjeev Kaushik.
In this edition, we uncover five powerful growth themes that are quietly transforming the future—and the opportunities they present are too big to ignore.
We also turn the spotlight on India’s economy—its hidden strengths, the volatile equity market, and a roller-coaster earnings journey. Is the future poised for continued growth, or do unseen challenges lie in wait, threatening to derail the ascent?
So let’s dive right into it..
Today at a glance:
- 1. Five Growth Themes You Can’t Ignore!
- 1.1 Tech’s Expanding Ecosystem
- 1.2 How Industrials Are Winning Big
- 1.3 Health Care: Innovation Driven by Technology
- 1.4 Dominant Players Across Industries
- 1.5 A Nation Worth Betting On!
- 2. India’s Economy: Slowdown or Growth
- 2.1 India’s Structural Strength
- 2.2 Equity Market Set to Keep Climbing?
- 2.3 India’s Earnings Roller Coaster Journey
- 2.4 Profit Growth on the Horizon
- 3. Leveraged ETFs: Quick Profit or Financial Trap?
1. Five Growth Themes You Can’t Ignore!
In today’s fast-evolving world, certain trends are reshaping industries and influencing the way we live, work, and interact. From groundbreaking technologies to shifts in societal priorities, businesses and individuals alike must keep pace with these changes to stay relevant.
Whether you’re a forward-thinking entrepreneur, a savvy investor, or someone passionate about innovation, there are five growth themes that are impossible to ignore.
These trends are not only driving the future but are also transforming opportunities in ways that could impact your next big move. Let’s dive into the game-changing forces shaping our markets over the next five years.
1.1 Tech’s Expanding Ecosystem
Profit growth outside Magnificent 7 has perked up.
The tech giants – like Meta, Nvidia, and others – are growing faster and bigger than ever, with little extra cost. For instance, Meta increased its revenue by 22% last year while cutting costs. Nvidia, known for its gaming chips, has successfully expanded into AI, boosting sales from $11 billion in 2020 to $60 billion in 2024.
What makes Big Tech even more powerful is the ecosystem of companies around them, from semiconductor designers like Broadcom to chip manufacturers like TSMC. These firms support tech giants and stand to benefit as demand for AI and data centers grows.
1.2 How Industrials Are Winning Big
Data centers jolt demand for electricity.
Beyond tech, industrial companies with high barriers to entry and solid market positions are set to grow. Industrial giants like Eaton and Schneider Electric are booming, thanks to the energy transition, reshoring of supply chains, and increased defense spending.
In the U.S., infrastructure and renewable energy investments are boosting demand for companies that supply electrical products, energy-efficient solutions, and defense technology. Aerospace and defense companies like Lockheed Martin and Raytheon may also see gains as global defense budgets rise.
1.3 Health Care: Innovation Driven by Technology
Health care remains a growth industry with massive potential, especially as technology transforms drug discovery and medical treatments.
Advances in genetic research and AI are driving a new wave of innovation. Technologies like gene therapy and RNA-based treatments are offering more precise ways to treat diseases.
Companies like Vertex Pharmaceuticals are leading the charge with CRISPR-based therapies, and obesity drug makers Eli Lilly and Novo Nordisk are capitalizing on their first-mover advantage in a rapidly expanding market. As health care spending continues to rise, the sector offers long-term opportunities for investors.
1.4 Dominant Players Across Industries
Some companies dominate their industries and enjoy a near-monopoly. Think LVMH and Hermès in luxury goods, TSMC in semiconductors, and Netflix in streaming. These companies have built competitive advantages through years of consolidation, innovation, and smart management.
For example, Costco has successfully exported its wholesale business model globally, and Boeing and Airbus hold a duopoly in aircraft manufacturing. These companies are positioned to continue leading their industries, although they may face short-term challenges.
1.5 A Nation Worth Betting On!
India’s equity market has expanded in the mid-cap space
India’s economy is rapidly expanding, and its private sector is brimming with high-quality companies.
Small- and mid-sized companies, particularly in manufacturing, chemicals, and consumer goods, are poised for significant growth.
Government investments in infrastructure, digital services, and housing are opening up new opportunities for companies to thrive. India could become a viable alternative to China for manufacturing, making it a critical market to watch in the coming years.
2. India’s Economy: Slowdown or Growth
Let’s take a closer look at India’s economy…
India’s economy may have hit a slight slowdown recently, but is it a temporary dip or the calm before a surge? Despite short-term challenges, is the long-term outlook filled with potential?
As we look ahead, the question remains: Is India on the verge of an economic breakout? Let’s uncover the key sectors and opportunities that could define the coming years.
2.1 India’s Structural Strength
India’s economic landscape presents a remarkable opportunity for growth, setting it apart from its emerging market peers.
Despite a recent slowdown in GDP growth due to fiscal pressures during the election quarter of April to June 2024, projections indicate that India could still achieve an impressive 6.5% real GDP growth and 11% nominal GDP growth from CY24 to 2030.
India’s nominal GDP could cross US$5tn by 2027, and US$7tn by 2030.
Goldman Sachs anticipates that India’s nominal GDP will surpass $5 trillion by 2027 and exceed $7 trillion by 2030. Looking further ahead, by 2050, India could emerge as the third-largest economy in the world, boasting a GDP of $22 trillion (in real USD).
2.2 Equity Market Set to Keep Climbing?
Earnings have long been the powerhouse behind India’s impressive equity market performance.
Over the past decade, Indian equities have dramatically outperformed their regional counterparts.
The NIFTY index boasted an impressive 12% returns in INR and 9% in USD over the last ten years, while MSCI EM and MXASJ indices barely nudged between 0-2% returns.
India’s stellar performance stands out even more when you consider that, from 2011 to 2023, MSCI India delivered the highest local currency return in Asia, averaging around 9%. This success was fueled by robust earnings growth of approximately 9%, making it the top performer in the region.
What’s even more intriguing is the shifting landscape of return drivers: In the last three years, earnings have accounted for about 90% of price returns, up from 65% over the previous decade. Since 2023, MSCI India has recorded a remarkable 46% USD gain, driven largely by a 33% increase in earnings, alongside a 15% change in forward price-to-earnings (P/E) ratios and a modest 2% depreciation of the INR against the USD.
However, with valuation multiples hovering at elevated levels—India currently trades at a 12-month forward P/E of 25x, approximately 2.5 standard deviations above its historical averages—concerns are mounting. This valuation represents a 90% premium to the MXAPJ index, compared to a 55% average over the last five years.
High valuations have become a common worry among investors, highlighting the critical need for a healthy and stable earnings trajectory to sustain further returns.
2.3 India’s Earnings Roller Coaster Journey
Over the past 25 years, India’s earnings have taken a dramatic turn, with both soaring highs and challenging lows. To understand what lies ahead for India’s economy, it’s essential to explore the past trajectory of its earnings, especially the evolution of the MSCI India index over the last 24 fiscal years, starting from FY 2001.
2.3.1 The Stagnation Era
During the 2010s, India’s profit growth hit a wall, compounding at a meager 5% compared to a remarkable 24% in the previous decade. This stagnation was marked by several domestic shocks, including a downturn in the property cycle, the NBFC crisis, and the impact of demonetization. Sales growth dropped significantly, from about 23% in FY 2001-08 to just 11% during FY 2012-19, as net profit margins contracted in five out of eight years.
2.3.2 The Four Factors Behind the Slowdown
What caused this decline in earnings? Four critical factors played a role:
- A Regional Slowdown: The earnings stagnation wasn’t unique to India; it was a trend seen across the region, driven by structural changes and cyclical factors like lower interest rates and technological disruptions. After experiencing 13% profit growth from 2000-2010, regional earnings fell to just 5% since 2011.
- Weaker Earnings Growth Correlation: Despite nominal GDP growth maintaining a healthy pace of 12% from FY 2012-19, the relationship between GDP growth and earnings weakened. A significant slowdown in capital expenditures (capex) hindered domestic growth, impacting overall earnings.
- Profit Margin Pressures: Rising operating and interest expenses led to a decline in profit margins. Average margins for MSCI India ex-Financials fell from 10% between FY 2001-08 to 8% during FY 2012-19 due to lower asset turnover and higher financial leverage.
- Unfavorable Macro Conditions: Several macroeconomic factors turned less favorable for earnings growth during the 2010s, including lower commodity prices, disinflation, currency depreciation, and a less supportive external growth environment. These elements created a challenging landscape for companies to enhance revenue and profits.
After nearly a decade of decline, a turning point emerged. India’s earnings cycle stabilized, with recent years reflecting a recovery, particularly in domestic sectors. Earnings revisions are on the upswing, marking a shift from the downgrades of the previous decade. Many domestic sectors have experienced a resurgence, with earnings growth returning to double digits after a prolonged period of stagnation.
2.4 Profit Growth on the Horizon
India’s earnings momentum is expected to continue, with MSCI India projected to deliver a solid 14% profit growth from FY25 to FY30. The country’s GDP growth, forecasted at 6.5% during CY24-CY30, will be driven by strong domestic demand from investments and consumption.
Key sectors like Investment Cyclicals (Autos, Real Estate, Chemicals, Industrials) are expected to contribute significantly to profit growth, with Consumer Cyclicals poised for 25% profit growth as India’s affluent consumer base expands.
Domestic demand will be the main driver of earnings growth, as India’s profit trajectory has become increasingly tied to its own GDP, rather than external factors like U.S. growth.
Power and New Energy sectors may outperform, benefiting from energy security policies, while Financials and Healthcare could see slower growth after leading the previous years.
While these forecasts are promising, it’s essential to acknowledge the limitations of macro models. External shocks or sector-specific developments could alter this trajectory, making more granular analysis important. Overall, India’s equity market remains on a strong growth path, supported by a resilient economic backdrop and favorable sector dynamics.
3. Leveraged ETFs: Quick Profits or Financial Trap?
Want to learn about Leveraged ETFs? In this video, we explore their potential benefits and hidden risks.
While these financial instruments can amplify returns, they also come with significant volatility that could lead to substantial losses.
Ready to dive deeper?
Watch now and discover if leveraged ETFs belong in your investment strategy!