4 Sectors to Watch for Future Multibagger Stocks

Editor's note: Indian share markets have turned volatile once again, and investors are back to bottom fishing.

The market volatility has gone up after a period of calm. But don't let this phase scare you. Timely market corrections are good as they present an opportunity to buy great stocks at a reasonable price.

Along with exploring undervalued stocks in India, you could also consider looking at an entire sector with high growth potential.

In June 2022, we wrote to you about four such sectors which are spearheading India's great transformation.

If stocks involved in these sectors are trading at attractive valuations, they could be potential multibagger stocks.

Continue reading to find out the latest developments...

Sectors to Watch Out for Multibagger Stocks

When it comes to investing in companies for the long-term, the most important aspect one must consider is the future of the company's product or service.

This means that for at least the next 10-15 years, the products should be in use. The last thing you want is for the product to become obsolete and the company to go out of business.

Furthermore, to generate good long-term returns from stocks, it is important to invest in areas that are developing.

Few sectors in India, such as utility, mining, and others, were good in the past and developing at a decent pace. However, these sectors are hardly in trend these days.

Hence, with changing market dynamics, one should invest in sectors that have scope for growth.

Here's a list of 4 sectors that are expected to grow in the next few years.

#1 Chemicals

India is the sixth-largest producer of chemicals in the world.

The chemical sector is immensely diverse, covering over 80,000 commercial goods and can be divided into bulk chemicals, specialty chemicals, agrochemicals, petrochemicals, polymers, and fertilizers.

India is a global leader in chemical exports and imports, ranking 14th in exports and 8th in imports.

Domestic demand recovery and strong exports will drive a 50% YoY increase in specialty chemicals manufacturers' capex in fiscal 22 to USUS$ 815-842 m.

Despite a drop in demand for polymers as a result of the COVID-19 pandemic, India is likely to witness growth to 32 m tonnes by 2030 in agrochemicals and pesticides.

To stimulate domestic agrochemical manufacturing, the government proposes to implement a production-linked incentive (PLI) scheme.

The Department of Chemicals and Petrochemicals was given US$ 27.43 M in the Union Budget 2022-23.

With all the above mentioned, it seems the chemical sector holds a good future and with growing demand and capex plans, one can expect good returns from this sector.

Here's a list of top chemical sector company and their performance

India's Top Chemical Stocks

Company	YTD (%)	3 Years (%)
Aarti Industries Ltd.	-20%	98%
Deepak Nitrite Ltd.	-17%	571%
GFL Ltd.	-3%	-17%
Navin Fluorine International Ltd.	6%	490%
Pidilite Industries Ltd.	14%	90%
Tata Chemicals Ltd.	19%	79%
Vinati Organics Ltd.	4%	84%
Clean Science and Tech	-30%	NM

Source: Equitymaster

#2 Multiplexes

Light, Camera, Action!

The multiplex industry is back in the spotlight.

The multiplex industry was one of the largest casualties of the Covid-19 pandemic. All the restrictions and regulations imposed in the past eighteen months of the pandemic caused major losses to the industry.

However today with the world bidding farewell to the pandemic, the multiplex industry is likely to be one of the multibagger sectors of the future.

People are back in cinema halls enjoying popcorn and Dolby surround sound.

Recently, PVR and Inox Leisure, India's leading multiplex chains, announced their merger.

Investors took to the news with great euphoria as the merger is expected to increase free cash flow, bargaining power, and cost synergies for the merged business.

PVR is currently working with 860 screens and is investing Rs 240-300 m to set up the upcoming property with and has signed an agreement with real estate developer M3M India.

Carnival Cinemas also hopes to have more than doubled its screen count to 1,000 by the end of the year 2023.

Have a look at how multiplex stocks have performed lately...

India's Top Multiplex Stocks

Company	YTD (%)	3 Years (%)
Cineline India Ltd.	20%	211%
Inox Leisure Ltd.	38%	45%
PVR Ltd.	28%	-10%
City Pulse Multiplex	-44%	17%

Source: Equitymaster

#3 Solar Energy

In the last 7 years, India has seen the highest growth in renewable energy capacity addition among all major nations, growing 18 times, from 2.6 GW in March 2014 to 49.3 GW by the end of 2021.

Rapid technological advancements, government incentives for solar panels, and the growing competitiveness of solar energy storage batteries have all aided in the deployment of clean energy.

In the last few years many investments and developments have been made in the solar sector.

Even recently, the Solar Energy Corporation of India (SECI), which is currently responsible for the development of the whole renewable energy industry, has been allocated Rs 1 bn in the Union Budget 2022-23.

It has already held large-scale central auctions for solar parks, awarding contracts for 47 parks with a total capacity of over 25 GW.

Going forward, solar energy is predicted to provide roughly 280 GW (almost 60%) to the country's energy mix.

With an anticipated investment of US$ 15 bn this year, India's renewable energy sector is expected to expand in 2022, as the government concentrates on electric vehicles, green hydrogen, and solar equipment production.

Let's have a look at how solar sector stocks have performed lately...

India's Top Solar Stocks

Company	YTD (%)	3 Years (%)
Indosolar Ltd.	-54%	703%
Solar Industries India Ltd.	49%	224%
Suzlon Energy Ltd.	-19%	229%
Tata Power Company Ltd.	-2%	250%
Websol Energy System Ltd.	-38%	371%
WAA Solar	-2%	60%
Synergy Green Ind	-13%	99%

Source: Equitymaster

#4 Electric Vehicles

Investors, now a days are interested in any company that is even remotely related to electric vehicles.

You see, according to a report by the India Energy Storage Alliance, the EV market in India is expected to grow at a CAGR of 36% until 2026. Furthermore, the EV battery market is expected to grow at a CAGR of 30% over the same time period.

After recovering from the Covid-19 pandemic, the Indian automobile sector is growing rapidly in 2022-23. Electric vehicles, particularly two-wheelers, are expected to have increased sales in 2022-23.

By 2030, India might be a global leader in shared mobility, paving the way for electric and autonomous vehicles.

By 2030, the electric vehicle industry is also expected to generate 50 m jobs.

Observing governments' plans for this sector, several automobile firms are diving into electric vehicles business.

To meet India's EV ambitions, a cumulative investment of US$ 180 bn in vehicle production and charging infrastructure would be required until 2030.

Well looking at these initiatives by the government, one can imagine how stocks in this sector will become a multibaggers in the future.

Let's have a look at how the companies of this sector have performed lately...

India's Top EV Stocks

Company	YTD (%)	3 Years (%)
Amara Raja Batteries Ltd.	-23%	-32%
Ashok Leyland Ltd.	23%	110%
Bajaj Auto Ltd.	9%	20%
Bharat Petroleum Corporation Ltd.	-19%	-34%
Eicher Motors Ltd.	38%	101%
Exide Industries Ltd.	-6%	-19%
Fiem Industries Ltd.	24%	286%
Greaves Cotton Ltd.	10%	3%

Source: Equitymaster

Conclusion

Well, these are the sectors that may give exponential returns in the upcoming future.

These sectors are backed by government policy and public interest in the product/service provided by the company.

We've covered more such editorials in recent months. You can check them out below:

• The Next Multibagger Stock Could Come from this Sector
• This Ignored Sector Could Produce the Next Multibagger Stock
• 4 Sectors that Could Produce Future Multibagger Stocks
• Defence Stocks: The Multibagger Sector of the Future

However, in this volatile market where each day is different, it is very necessary to invest carefully.

Brace yourself for a bumpy right ahead, but with the right information and proper judgment, this ride can become beautiful too.

Remember, think twice, and invest wise.

Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such. Learn more about our recommendation services here...

FAQs

1) What are the best sectors to invest in?

The Indian economy is booming. In September 2022, India overtook the UK to become the world's fifth-largest economy. If you consider that just a decade ago, India was at 11th position, this is no mean feat.

As we stand on the cusp of rapid developments, these are the sectors you should look at apart from the ones highlighted in the article:

#1 Real Estate: Many things change, but the need to have a bigger and better house is constant. As people become richer their demand of better living space is higher.

#2 High-End Consumer Retail: We are moving from trends to class. Consumer brands - fashion, electronics, accessories - that recognise this shift will develop a base of loyal premium customers.

#3 Travel and Tourism: This will be a huge growth industry in India's future. Covid-19 already seems like a distant memory and people have begun spending big money on luxury vacations.

#4 Technology: Today, the tech sector in India is dominated by IT services firms. But in the long term, India's tech sector will look very different. The big IT services firms will likely still be around but the growing number of new age companies will dominate.

#5 Healthcare: But as a nation gets older, the healthcare needs of its people goes up. The older we become, the more we depend on the pharma sector.

This ofcourse is not the definitive list of sectors to invest in. It's just an indicator of the size of the opportunity ahead of us across various sectors.

Our recommendation as always is to look for undervalued stocks with solid fundamentals that could turn multibagger in the years to come.

2) Which sectors will boom in next 5 years?

India is a fast growing economy and is all set to dominate global economic growth over the coming decades.

In such a scenario, it is not hard to imagine that various domestic sectors are set to boom.

In fact, it will not be incorrect to see massive growth across sectors.

Having said that, it is important to note a few new age sectors that have taken off in India recently.

#1 Drone sector

#2 Agritech sector

#3 Green Energy sector

#4 Sugar/Ethanol

#5 Semiconductor

It remains to be seen how large these become in the Indian context in the years to come.

3) How to Find Multibagger Stocks?

To identify multibagger stocks, you need to look for these seven traits among others:

• A solid competitive advantage
• Fast sales growth and a high current or future profitability
• Companies with low marketcap
• Low or reducing debt level
• Growing free cash flow
• Relatively high promoter holding
• High and possibly increasing Return on Equity (ROE)