Stock markets in India have been soaring as the economy enters a prolonged period of political and economic stability. At elevated valuations, near term returns seem uncertain but investors should focus on riding the megatrends.
India’s per capita income has grown by 300% in rupee terms in the last decade, creating an aspirational consumer of goods and services. This, coupled with government policies, has kickstarted megatrends that will drive India’s growth story over the next decade, creating massive investment opportunities.
1. Formalisation of the economy
The unorganised sector accounts for nearly 75% of trade and 90% of employment in India. With initiatives like GST, the tax arbitrage available to the smaller traders will slowly erode increasing addressable market for the organized companies. The opportunity for established players in the consumer, healthcare, textiles, and jewellery industries is immense.
Organised hospital and diagnostic companies control only 10% of the overall market which is growing at mid-teens every year. With only three to four large players in the country, they are expected to catapult five to six times in the next decade.
Dr. Lal Pathlabs is the second largest pathology service provider growing at an impressive 27% revenue growth in the last five years, 11% above the industry growth. It generates a healthy cash flow and has seen a PE contraction recently to 30x against 45x historically providing a good entry point to long term investors.