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‘Services’ is the future

Sep 29, 2000

When the stock markets turn bearish (as they are currently), it has been seen the market movers buy into the defensive stocks. These include fast moving consumer goods sector (FMCG), utilities, oil stocks and other similar sectors. But lately this has not been happening. Rather market movers seem to have given up hope on FMCG as well. Having tasted more than 50% growth in turnover, and over 75% growth in profits in the new economy stocks, the institutional investors’ seem disenchanted by staid single digit turnover growth in FMCG and the volume driven business. It looks like they want the returns like the new economy packaged with the safety of defensive stocks.

In such a scenario, which sector one should look at? Services or rather value added services seem to be the answer. Be it in banking, financial institutions, engineering or the power sector. As the per capita income levels rise, so will the demand for these services both at the retail level and the corporate level. The most important aspect of this segment is that the more value you add, the higher your margins.

New age banks and NBFCs are doing it in a big way. Whether the service is as small as collecting your telephone bills or giving you investment advice or acting as project consultants, all this helps these companies to attract more business and better valuations on the stock market. All this also, doesn’t add to their NPA levels.

Take the case of engineering companies. Majors like ABB, Cummins India and Wartsila Diesel are acting as consultants, maintenance experts for the power plants they build for their clients. They not only build the plants, but are also asked by clients to maintain it for life. Though these services comprise a very small portion of their turnover currently, but the potential for their growth is huge.

The way ‘branding’ improved valuations for FMCG companies, services will do the same for a growing mass of India Inc.

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