For the year 2022, the Indian stock markets have performed significantly better than other emerging market peers, currently trading at its highest ever level and drawing in both domestic and international investors by the droves.
However, for investors who missed out on the astounding rally post the March 2020 lows, investing in the market today can be really confounding in terms of stock selection.
Looking ahead at India’s promising growth prospects and recognizing the sectors that will drive it towards becoming a $5 trillion GDP economy can help us in spotting the outlier stocks that could return multi-fold returns in the current decade.
Five sectors expanding the Indian economy
While the stock market does reflect the trend within the wider economy, it is the jobs market that is a real indication of which sectors are growing exponentially and contributing towards the real progress of the nation.
In that sense, sectors such as Telecom, Information technology (IT), Healthcare, Retail and Infrastructure are expanding rapidly and creating thousands of jobs in the formal economy. This should entail higher revenues for companies operating in these sectors and translate into better returns for investors committing capital towards them today.
Additionally, mobility and renewable energy-focused stocks are also worth looking at, although many stocks in this sector have had a massive bull rally and warrant some consolidation.
Identifying the market leaders with attractive valuations
Buying a stock for the long term is akin to investing in the business and believing in its growth potential. This makes the case for selecting market leaders in the above-mentioned sunshine sectors even stronger, as they are bound to increase their customer base faster on an absolute basis.
Moreover, with the growing use of technology like blockchain and ML, these companies are using the power of data for business expansion in under-penetrated markets or segments and remain favourites to capitalise on the opportunities presented. Investors would do well to research these companies and keep track of mergers or acquisitions that could signal the rise of the next market leader in each sector of the Indian stock market.
Betting on small-cap stocks that are at the forefront of innovation
Contrary to the popular perception of them being risky propositions, the small-cap space is bustling with high-growth companies that are trading at attractive valuations as compared to their financial performance. While there is no set formula to recognise which stock in a sector could benefit the most in terms of market share in the future, staying updated about the latest companies to join the various small-cap indices can be a good starting point. It is important to research about the company’s past performance, current management and future expansion plans to spot a winner in this exciting space.
As Warren Buffet once said, the only two rules of successful investing are rule number one: never lose money and rule number two: never to forget the first rule. With that in mind, it is crucial to regularly assess one’s portfolio and apply appropriate risk protection strategies when investing in any stock or sector. Investing in small amounts on a regular basis and applying a suitable stop loss are basic steps towards smarter decision-making in the stock market.
Mr. Raghvendra Nath, Managing Director of Ladderup Wealth Management