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Home / Markets / Stock Markets /  Investing in the Future: 4 Sectors that Could Produce Future Multibagger Stocks

Investing in stocks for the long-term always teaches you to identify a company which has a long runway for growth.

It will all depend on the company's product or service being of some use for the next 10-15 years and not becoming obsolete.

There are many sectors out there that have this potential. These can produce future multibagger stocks.

For example, the technology sector is known for its explosive growth in recent years. Many of the leading tech companies are already worth a lot more than they were when they went public. There’s no reason to believe this trend won’t continue.

Another sector that has a lot of potential is healthcare. There’s no doubt this sector needs reform but there are also a lot of very promising companies out there that can help usher in th change.

Of course, investors shouldn’t expect any quick profits from their investments.

With changing market dynamics, one should invest in sectors that have scope for good long-term growth.

Here's a list of futuristic sectors that could produce future multibagger stocks, i.e. multibagger stocks for 2025 or 2030.

#1 Autonomous Driving

Autonomous cars were something you'd only see in the movies. Today, driverless cars are a reality.

According to a report, it is estimated that by the year 2030, self-driving cars will constitute 25% of all the cars plying on global roads.

Think summoning your driverless car to pick you up from your mobile device with the help of 5G service. 

The Future of Automotive Innovation

 

It has become imperative for auto companies to be agile and adaptive. You’re already seeing the big change happening from petrol and diesel cars to electric vehicles (EVs). It's essential for them to have a deep understanding of emerging technologies.

Autonomous cars use advanced technology and sensors to help navigate the road safely. The numerous video cameras and sensors in these cars enable them to read road signs and detect the edges of the roads, traffic signals, and the presence of other vehicles. 

All of this data is processed in a central control system, which then controls the steering and movement of the vehicle at a safe distance from other vehicles.

How exciting!

But autonomous driving is hard in India due to dangerous roads and absence of proper infrastructure. 

However, it has not stopped auto firms, IT companies and startups from entering the field.

Here are the Indian companies which have some exposure to the autonomous driving space.

CompanyCMP (Rs)1 Year (%)3 Years (%)5 Years (%)
Escorts Kubota Ltd.            1,736 

45%

278%

147%

HCL Technologies Ltd.               949 

-8%

86%

115%

Mahindra & Mahindra Ltd.            1,165 

54%

113%

63%

Tata Consultancy Services Ltd.            3,301 

3%

51%

164%

Tata Elxsi Ltd.            8,689 

106%

1312%

900%

Tech Mahindra Ltd.            1,049 

-13%

68%

160%

Sona Comstar               593 

35%

-

-

Source: Equitymaster

In the coming years, there will be a time when India will focus more on adoption of autonomous vehicles like how it’s working on the electric vehicles at present. 

For investors looking to tap into this opportunity, keep an eye on technology companies which are making this possible.

#2 Pet Food Business

A recent report said India’s pet food industry grew during the pandemic. This caught my attention. This sector is expected to grow at a quicker pace between 2022-2026 

The report stated that as more Indians adopted pets during the pandemic, the pet food industry boomed. This trend is expected to continue.

Pet Food – Worldwide Market

Chart, bar chart

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Data Source: Statista

At present, the pet food market is around 40 bn. It’s expected to grow significantly over the next five years. India's pet care industry is set to touch 100 bn by 2025.

The industry has grown at a CAGR of 39% between 2018-21. It’s expected to grow at a CAGR of 50% in the next five years.

This has presented a lucrative opportunity for the companies already present in the sector and for FMCG companies like Nestle, Emami to enter the fray.

Last week, Nestle India acquired the pet foods business of Purina Petcare India for 1.2 bn.

Prior to that in June, Emami announced an investment in a pet-care startup Cannis Lupus Services India. It offers Ayurvedic remedies for pets under the brand "Fur Ball Story".

Last year, Cosmo Films forayed into the pet care business with the brand ZIGLY.

Who knows? These companies might make all the difference just like how Reliance entered the green hydrogen sector and changed the dynamics.

Nestle India Chairman and Managing Director Suresh Narayanan said pet care is among the fastest growing categories. There are an estimated 30 million pets in the country.

Other Indian companies which are present in this space include Fredun Pharma, Godrej Agrovet, Venky’s, Gulshan Polyols, and Gujarat Ambuja Exports.

 

#3 Diagnostics

Post 2020, Covid testing increased and spending on healthcare became a top priority. This led to a manifold rise in revenues, margins, and profitability for diagnostic chains.

This resulted in a sharp rise in diagnostic stocks which sent their valuations to sky-high levels. Of course, the rally could not be sustained, and the entire sector took a sharp hit this year.

This happened because everyone though the trend would not continue over the long term and things would normalise after the pandemic.

As the waves settled, the volumes from this business came down. Even the pricing for Covid tests was capped at much lower levels.

Another factor which affected diagnostic companies is competition in the sector. The emergence of new players like Netmeds, Tata 1 MG, Pharmeasy, for the fight for market share began.

The diagnostic sector is largely dominated by unorganised players, that command majority (close to 85%) market share. While disruptive pricing and increased competition in diagnostics will hurt all incumbents, it is the unorganised players that will be the worst hit. 

The sector is ripe for consolidation with market share shifting in favour of organised players that at present command 15% to 17% of the market share. 

The overall industry size is likely to keep increasing due to low penetration. The pie is big enough for more than two or three players to take a big bite.

Chart, pie chart

Description automatically generated

So one reason is consolidation. Another critical aspect here is accuracy of testing and the turnaround time.

Companies in the organised sector are setting up 'satellite' centres which will lead to better collection efficiency.

India's rising life expectancy will lead to an increase in lifestyle diseases. This will require more specialised testing which means higher profits for diagnostic companies.

 

#4 Infra

Now I know what you’re thinking.

At a time when the focus has shifted towards tech stocks and new age IPOs, why is this guy talking about the infrastructure sector?

A majority of sectors took a beating in 2022 but there were some exceptions. One of the exceptions was the infra sector. 

Infrastructure sector stocks started rallying after the Union Budget for 2022-2023 was announced. 

Every budget has given us a theme and this year’s budget was more focused on the infra sector.

Finance Minister Nirmala Sitharaman announced the government will focus on the 'Gati Shakti' plan.

In the budget, the government also announced a 35% YoY increase in infrastructure capex. The government has emphasised the growth of infrastructure to boost the economy.

Chart, bar chart

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This is backed by the government's announcements on the production linked incentive (PLI) schemes. Global supply chains are shifting away from China. India is a key beneficiary of that trend.

All this laid the foundation for the next leg of growth for infra sector. Infra companies have started to show increase in profit margins already and some have deleveraged their balance sheets and improved cash flows.

It seems that the 2003-2008 period for capital goods and infrastructure sector is ahead of us.

chart

No wonder lead smallcap analyst at Equitymaster, Richa Agarwal, calls investing in infra stocks her favourite investing theme.

Here's an excerpt of what she wrote in of the editorials:

The good news is that the benefits of the capex cycle will not limited to the obvious names.

It's a trigger for a virtuous cycle. The multiplier effects of this capex boost will not be limited to the frontrunners but will spill over to multiple sectors.

And for certain companies the demand for products won't just be limited to new capex coming in a particular segment. It will be diversified across sectors and will be supported by replacement demand too.

It's such companies long term investors should be paying attention to. More specifically, the ones where valuations are not prohibitive yet.

Investors looking to benefit from this infra cycle should focus on companies with minimal debt and which have a track record of generating solid return on equity (ROE). 

If a fundamentally strong company has some debt on its books, check the short term borrowing and long term borrowings. This will help you analyze how much debt is serviceable for the time being.

For starters, check out the top infra stocks in India customized by Equitymaster’s powerful stock screener.

 

Conclusion

So there you go…the top four sectors which could potentially boom in the years to come.

Despite short term volatility in some of these sectors, we believe these sectors to do well over the long run.

Just like the technology sector, investors finding the right opportunity in these sectors will create massive wealth for themselves.

Happy investing.

Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such. 

This article is syndicated from Equitymaster.com
 

 

 

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