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  • Sep 27, 2022 - Important Update: How the Top Indian Megatrends are Shaping Up

Important Update: How the Top Indian Megatrends are Shaping Up

Sep 27, 2022

Important Update-How the Top Indian Megatrends are Shaping Up

India is definitely at the forefront of technological development. In fact, this decade could turn out to be the biggest yet for India as most of the disruptive innovations are progressing at breakneck speed.

With the cryptocurrency boom past us, investors are looking at a number of disruptive trends in areas such as electric vehicles (EV), EV batteries, renewable energy, drone technology, and more.

These megatrends are transforming India into a tech hub.

We have seen a boom in drone sales over the past few years. The demand for these gadgets has also resulted in an explosion in the number of aerial cameras being sold, and with this comes a significant rise in drone stocks!

For wealth creating opportunities, you need to keep yourself updated on how the megatrends are shaping up. Are there any hurdles or are the stocks involved sailing a smooth ride?

In this of editorial, we take a look at how the electric vehicle megatrend, renewable energy megatrend, and drone megatrend is shaping up in India.

This is the first part, in a series of editorials, which we plan to cover in the coming weeks.

Let's get started.

#1 Renewable energy

India's top renewable energy companies are on a buying spree. They're setting up solar plants, forming partnerships and JVs, and acquiring stakes in exciting unlisted companies, to achieve India's renewable energy targets.

In 2015, India set a target of having an installed capacity of 175 gigawatts (GW) from renewable energy resources by the end of calendar year 2022.

As recent developments suggest, India has so far installed 66% of its targeted renewable energy installation. India has installed 116 GW of renewable capacity by end of August this year.

If we look at individual states, only Gujarat, Rajasthan, Karnataka, and Telangana have met their state-wise targets.

The big four, Maharashtra, Uttar Pradesh, Andhra Pradesh, and Madhya Pradesh, are lagging behind their targets and account for around 60% of the shortfall.

A large part of this massive target was to come from the solar segment. And the segment did not disappoint.

An acceleration in solar power segment resulted in a 22% growth in solar installations compared to the previous eight months of last year. March 2022 saw peak installations for the solar segment.

However, overall, solar installations slowed down as the government introduced basic customs duty on the import of solar modules and cells. At present, majority of India's solar capacity comes from imports.

The Modi government has recently announced a Rs 195 bn PLI scheme for manufacturing of solar panels.

It appears that India may not reach the targeted capacity at the end of 2022. But what about 2030 targets? India has a target of setting up 450 GW in renewables segment. Only time will tell.

Multiple efforts are in progress. Just last week, India presented investment opportunities in the renewable energy sector to the deputy prime minister of Singapore.

Tomorrow, India is also hosting an exhibition, the Renewable Energy India Expo 2022. In this exhibition, industry leaders and experts will provide a white paper on the situation, potential, and difficulties in renewable energy in India.

As we've said earlier too, renewable energy is reshaping the future of India's energy sector.

#2 EVs and EV battery

Electric vehicles (EVs) are touted as the future of automobile sector and for good reasons.

Experts are betting on the Indian automobile sector as the sector is up for a strong rebound. The reason? EV megatrend.

The EV megatrend is so massive that companies with a credible EV story or even a small exposure to EV market, are immensely rewarded.

Don't believe us? Here's an example...

In July this year, solar company Gensol Engineering invested in a USA-based electric vehicle (EV) unit. The company signed a term sheet to invest and acquire a major stake in said firm.

What followed next? You guessed it right.

The increasing awareness about environmentally friendly transport has increased the demand for EVs.

As per industry statistics, in India, EV sales hit their highest at 429,217 units in the financial year 2022, up 218% YoY from 134,821 units in the financial year 2021. This was also 155% higher than 168,300 units sold in 2020.

This year, the EV market will deliver yet another spectacular numbers. If the past five months are an indicator, EV sales will cross a million units by March 2023, up 84% over last year.

EV Sales On the Rise

Segment FY22 FY23 (Till August)
2-Wheeler EV 345,102 276,357
3-Wheeler EV 177,874 132,823
Electric Cars 18,882 14,589
Electric Buses 1,193 900
Data Source: Society of Manufacturers of Electric Vehicles

By 2030, the EV market is anticipated to reach 10 million annual sales, growing at a CAGR of 49% between 2022 and 2030. CAGR of 49%, let that sink in for a while.

All this has been possible with the help of government's increased push. The initial steps were taken in 2015, when India launched the Faster Adoption and Manufacturing of Electric Vehicles (FAME) scheme.

To name a few other initiatives, the government has:

  • Allowed 100% FDI through the automotive route in the EV space
  • Provided financial support through the Credit Guarantee Scheme for Start-ups (CGSS)
  • Laid out a PLI scheme to promote domestic production
  • Provided subsidies for consumers
  • Implemented various incubator programs, and shared facilities for small-scale manufacturing

An Economic Times articles states that the government, World Bank and Small Industries Development Bank of India (SIDBI) are set to launch a US$ 1 bn fund to provide guarantees against loan default to lenders financing purchase of electric two- and three-wheelers.

Here's an excerpt:

    Over the last few months, the EV financing segment is getting crowded by many fintech companies and NBFCs who have stepped into finance EVs with a competitively lower rate (than earlier) of interest.

Apart from pure EVs, the two other segments which have progressed immensely are EV charging infrastructure and EV batteries.

NITI Aayog recently said that India is witnessing a 93% growth in charging infrastructure in 2022, compared to a year ago. In the first half of the calendar, India has installed 5,996 public charging connectors.

For EV batteries, Finance Minister Nirmala Sitharaman announced the government's EV battery swapping policy in the budget 2022.

The battery swapping policy gave a big boost to the entire EV ecosystem. The policy was intended to reduce the cost of buying EVs in India and tackle the issue of battery charging.

It's clear that significant growth lies ahead for the EV industry and the momentum is expected to continue.

#3 Drones

Last year in September, the government first introduced the PLI scheme for drones. The PLI scheme laid out an outlay of Rs 1.2 bn spread over three years for drone manufacturers.

The scheme was expected to double the combined sales turnover of companies in the drone market in the financial year 2021-22.

Out of the scheme's plan for three years, one year has already passed. In this one year, the drone industry passed expectations by a big estimate.

The drone industry turnover has more than trebled to Rs 3.2 bn in fiscal 2021-22, much higher than the scheme's target of Rs 2 bn.

For the financial year 2022-23, the government has set a target of Rs 4 bn in turnover, but looking at the growth trajectory, it is now estimated to hit Rs 7 bn. In fact, even the outlay of funds is expected to be increased to 5 bn from Rs 1.2 bn.

This means Indian companies in the exploding drone market have a strong runway ahead of them.

A recent EY - FICCI report titled 'Making India the drone hub of the world,' indicates that the drone and its component industries can boost India's manufacturing potential to approximately US$ 23 bn by 2030. That's Rs 1.8 tn in rupee terms.

This is not a random estimate. The use cases of drones in multiple sectors can drive the industry to exponential heights. The Civil Aviation Ministry has estimated that India's drone sector will achieve a total turnover of Rs 120-150 bn by 2026.

In addition, the government has planned to attract investments of Rs 50 bn in the next three years in the drone manufacturing industry and plans to create more than 10,000 job opportunities.

Some other initiatives by government include funding of up to Rs 6,000 per hectare to promote the use of drones in agriculture.

The Hara Bhara project is another initiative where the government plans to plant 1 bn trees in Telangana, by 2030-in partnership with a drone start-up called 'Marut Drones'.

Not to mention center's move for all drone operators to promote secure operations without needing multiple approvals by possessing a valid unique identity number (UIN).

This came as a big positive for RattanIndia Enterprises. The company, with its drone company Neosky, assisted with manufacturing company Throttle to launch a 'drone defender.'

Also, there are more proposals under discussion which aim at making drones which are made in India, to cost a fraction of imports.

India used to import predator drones from the US. But the unlisted Adani group company Adani Defence with its JV with Elbit Systems, has taken on the project to develop drones indigenously at much more affordable cost.

In conclusion

As can be seen from these developments, through small steps, the Indian government is putting together pieces of the puzzle and opening the door for India in a big way.

We believe these trends will become mainstream over time as adoption increases. Investors finding the right opportunity in these megatrends will create massive wealth for themselves.

You just need to keep an eye on the top companies involved in this space which also offer comfort on financials and valuations.

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

Happy Investing!

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...

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