ValuePickr Forum

Sectors with tailwinds

Its a general common sense to adopt below mentioned strategy to be successful in investing:

  1. Identify the sector which has natural tailwind. A good natural thrust supports the able mgmt if its already in place. As Buffette said that even strongest mgmt can not salvage the ship marred by strong headwind.

  2. Spot the strong compnaines in such sectors

  3. Bet with concentrated portfolio and stick to one’s conviction

Below seems to be the sectors where we can hope to see strong tailwind in next few years:

  1. IT& Pharma )- Weak INR, improving economy in their target countries, proven competencies. My bet is eClerx.

  2. Consumption )- I am skeptical for short term but long term tailwind is intact. Though Inflation is a resistance but growing young and middleclass population will lift it again. My bet isMayur, Shalimar, Supreme, Page&CERA.

  3. NBFC )- Each major player has created the niche for itself by identifying the certain segment. For example, Repco lends money where other bigger players hesistate. India being heavily under financed, NBFCs should do well in long term. My bet is Shriram City Union & Repco.

Boarders can suggest more on above.

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1)IT & Pharma )- I will chose Tech Mahindra .The management track record is good and they are utilizing the synergies by merging companies .They have overcome from one client dependency .Tata elxsi is a dark horse in this sector .They seem to have gaining traction and they serve a niche segment .
Aurobindo pharma .Leaving the debt and pledging issue aside the new management is doing some serious development for their injectablesdivision .They have a huge pipeline of approvals too .Here again suven lifescience can prove a dark horse
2)
Consumption
-Pvr cinemas -Current valuations are rich .But people tend to spend money on movie tickets .Other bets are
Mayur ,Shalimar ,Astral and Kaveri
3)NBFC-I will go with M&M finance ,Repro and****Shriram City Union

1)IT & Pharma )- Tech Mahindra .Tata elxsi

I looked at it before but couldnt figure out how it can beat its peers TCS, INFY, WIPRO etc. After decent turnaround consolidation, my feel is it will revert to mean. At least i do not see it doing anything very different than others. I might be wrong but evidence does not encourage me to bet a serious money. Let me know if you have better arguments.

tech m coming from mahindra group with sub 50000 cr market cap looks cheap…watching it since 800 levels…below 20000 cr mkt cap…im targetting it to be a 1-1.5 cr mkt cap company…reason being that since tcs is commanding a 4 lac plus mkt cap…the next information tech co with a strong group is mahindra…it looks better than wipro/infy with no mgt succession issues…

the stock markets have strange behaviour…remember this secret…"once people are clear about the earnings and visible future growth of the co than only they buy a stock…and by that time it would already have risen 10 times…

so the secret lies in unknown future…max profit is made where future is unclear…

for example tata elxsi…still a 1200 cr co with 800 cr sales…if this co by chance does a 1500-2000 cr revenue with margins rising from 8-9% to 15-18%…it has a potentail to be a 5-10 bagger…and once that is achieved…still it will continue with growth after becoming a 10 bagger…risk is loosing only 100 rupee…but the profits will be huge if this unknown future is captured…hence always try to assume the risk/profit maxim

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I think small ticket home finance (Gruh/Repco) should be considered a sector with tailwind. Comments welcome. “Leisure biking” if want to consider it as a sector & Eicher.

  1. Can you plz elaborate why you feel Gruh/Repco has tailwinds?

  2. Eicher though not tracking but i knew their CV is doing bad but Bike is robust? Will Biking business growth carry Eicher forward till their CV business turns around?

Hi Manish,

1). There are various reports about India being a majorly under banked population, people not having access to loans, and more so on small ticket home loans etc etc… Big Banks have their own cost structure which make it difficult to go after home loan of size 5-10 lac.

Apart from all those factors (mostly known), let’s look at this para in the 2011 AR from Mr. Buffett.

"Housing will come back â you can be sure of that. Over time, the number of housing units necessarily****matches the number of households (after allowing for a normal level of vacancies). For a period ofyears prior to 2008, however, America added more housing units than households. Inevitably, weended up with far too many units and the bubble popped with a violence that shook the entire economy.

That created still another problem for housing: Early in a recession, household formations slow, and in2009 the decrease was dramatic.That devastating supply/demand equation is now reversed: Every day we are creating more households****than housing units. People may postpone hitching up during uncertain times, but eventually hormonestake over. And while âdoubling-upâ may be the initial reaction of some during a recession, living within-laws can quickly lose its allure."

Would recommend to re-read that whole section in page 5. I particularly like the linking of “housing creation” to “household creation”. Household - in the sense, people earning well enough to start a family and yearning for a roof over their head. If we are to do well as an economy, which i think we will, then small ticket housing can prosper really well for a long time. Big banks are yet to wake up to this in significant way, but eventually they will. Till that time Gruh/Repco and similar kind of focused companies can make merry and build competencies which can make them grow well for long period of time.

Also I have seen many real life experience of people having small scale business (self employed) saving up for years to build a home of their own even in small cities.

Mgmt. comments from Gruh/Repco also point to similar factors working in their favor.

  1. There is a thread for Eicher. Yes, CV industry is doing bad. EicherM though has been gaining market share with declining sales with biggies like Tata Motors losing share for close to 3 years now.

But the story in 2 wheeler is really strong. People have been waiting for months (3-6 as per input) to own one. Capacity constraints has caused this waiting time. They have ramped it up by significant numbers now and should be able to capitalize on the unmet demand. Along with that they have been developing an export strategy which seems to be shaping up well. Unlike Bajaj/Hero which have been targeting developing countries where low cost is a major advantage, this company is going the other way targeting countries where it can sell them for premium (UK/US/Europe/Japan). Of course, any quality issue will get magnified in such countries and might impact sales and future operations. But I think overall the mgmt. is very focused and taking the right steps.

On number front, 1 or 2 more years of such scorching growth for 2-wheeler can make the CV decline less significant. Check the Eicher thread for the numbers.

Raj - Indeed a persuasive argument!

I landed up on this tread while searching for Sectoral Tailwind in Indian stock market and find it very useful but for some reason this thread has been discontinued since Jan’14. Can we revive this thread?

I would like to discuss the sectors where there is industry dynamics present as well as having a tailwind effect in it .

e.g.

  1. Auto Ancillary : This sector will now be having a tailwind effect due to GST roll-out in July.
  2. Housing Stocks : PVC,Ceramic, Sanitary, Paints , Plywood will be having a direct beneficiary of Housing For All and a direct beneficiary of GST.
  3. NBFC & HFC : With the new RBI regulation and rate cut on the card this sector also looks lucrative
  4. Retail & FMCG Sector : Retail & FMCG sector particularly the Consumer staple business is seeing a big tailwind since last year.
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Digital Transformation sector a sub segment of the IT sector looks very promising as companies world wise are opting for digitisation the sector is poised to grow at a fast rate for next few years.
Digital trasformation vendors which help the other to go through the digitization process will reap the benefit of this growth going ahead.
some sectors which will go though digitisation process are Health care Retail Automotive etc.The digital transformation market is again subdivided based on solutions provided eg.cloud computing Big data social media mobility etc.
According to a report I was reading globla demand for digital transformation market was valued at aŕound USD150.50 billion in 2015 and is expected to reach 431 billion in 2021 growing at a rate of 19.2%.
Some Indian companies operating in this segment are 8K miles Intense technologies etc.

Great one and not only that digital transformation sector with cutting edge technology like IoT & AI will command this section. From one of my subscription it is also evident. And I am having two of this sector stocks namely Tata Elxsi & Persistent Systems in my portfolio.

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Two other sectors also having the tail wind effect

  1. Information,Media & Broadcasting sector with rising add revenue new FDI rules on the card.[Balaji Teliflims, Radio City looks to me a good bet]
  2. Power Transmission Sector. [Adani Transmission, Kalpataru transmission, Apar Industries looks to be a front runner in this space]

The F&B services industry has seen huge growth in last few years and is expected to grow in the same pace.The various segments of F&B services industry are Quick service resturants,Casual dining ,Fine Dining resturants and Cafes.
Due to changing lifestyle,larger share young population,increasing urban working women and increasing disposable income are drivers for future growth of this sector.While 2016 has not been a very good year for the industry still future looks promising for the sector.
Among the subsegments QSR market is supposed to touch Rs.25000 cr by 2020 growing about threefold according to an Assochem study.But due to entry of many international and national players competition has increased which pose challenge to the players.Orgnaised coffe expected to grow 20%CAGR .Due to monopolistic nature of competition these companies mainly coffee day and starbucks thtough tata global beverages can grow at a healthy rate. http://www.dnaindia.com/money/report-cafe-growth-story-in-india-has-just-started-says-ccd-chairman-g-siddhartha-2133876. In an interview CCD chairman G Siddartha said coffee growth in India has just started and cited a research report by consulting firm Technopak to support his statement. coffee production is facing some climatic challenges. Fine Dining is supposed to grow at 13%.
Jubiliant foodworks,Speciality Resturants, Coffe Day enterprises are some of the companies operating in QSR,FineDining and Cafe segment.qsr-market-in-india.pdf (194.5 KB)

The Indian media & entertainment sector is expected to grow at a
Compound Annual Growth Rate (CAGR) of 14.3 per cent to touch Rs 2.26
trillion (US$ 33.9 billion) by 2020, while revenues from advertising is
expected to grow at 15.9 per cent to Rs 99,400 crore (US$ 14.91
billion). Over FY 2015-20, radio will likely grow at a CAGR of
16.9 per cent, while digital advertising will grow at 33.5 per cent. The
largest segment, India’s television industry, is expected to grow at a
CAGR of 15 per cent, while print media is expected to grow at a CAGR of
8.6 per cent.! India is one of the highest spending and fastest
growing advertising market globally. The country’s expenditure on
advertising is estimated at 15.5 per cent in 2016, and is expected to
grow by 11.2 per cent in 2017, based on various media events like T20
Cricket World Cup, the Indian Premier League (IPL) and State elections.
Television segment, which continues to hold highest share of spending,
is expected to grow by 12.3 per cent in 2016 and 11 per cent in 2017,
led by increased spending by packaged consumer goods brands and
e-commerce companies.$ The Foreign Direct Investment (FDI)
inflows in the Information and Broadcasting (I&B) sector (including
Print Media) in the period April 2000 – December 2016 stood at US$ 6.3
billion, as per data released by Department of Industrial Policy and
Promotion (DIPP).Entertainment-February-2017.pdf (1009.9 KB)

Diagnostic sector which is a sub segment of healthcare industry is poised for high growth for next few years driven by improving health care facilities, public-private projects,health insurance sector etc.A report by Research and Markets Indian diagnostic serivces market outlook 2020 expects the market to grow at 27.5%for next few years.The diagnostic market is highly fragmented due to low entry barrier but recently organized diagnostic segment have gathered momemtum.indian-diagnostic-services-market-outlook-2020.pdf (49.6 KB)

For this sector I am already having thread for
Dr Lal. :- Dr Lal PathLabs a well recognised brand in the Diagnostic Sector . And Amitayu has a thread of
Throcare :- Thyrocare : A Debt free Asset Light Wellness Healthcare Brand Play

Packaging industry is at inflection point and the outlook also seems very good.

Any idea with the Real Estate Sector tailwind ? With the affordable housing project going on can we expect a tailwind in this sector? Previously we have seen Ashiana Housing, Poddar Developper has outperformed the market recently Kolte-Patil has moved beyond 100% whose business model I like the most. Any input from any one ?

Auto sector
Maruti has launched 2 new vehicles: S-Presso and XL6,
Ignis facelift and new Brezza coming up.

Tata: Altroz and Tigor EV

Hyundai: Venue and Aura

Mahindra: E20 NXT, eKUV etc coming up

Renault: Triber and Captur

Honda: HRV and new City

MG: Hector and ZS EV

Kia: Seltos and Carnival

stockwise, auto sector is down. With new models, could we see an uptick in auto sector in 2020?