These Stock Market Sectors Dominated in 2024. Is There More Room to Run in 2025?

The Indian stock market has broken several records in recent years, bouncing back from the corrections it saw after the Covid-19 pandemic's outbreak.

As we approach the end of 2024, the market has seen significant movements in various sectors, with some industries standing out for their strong performance and resilience.

The Indian economy is expected to grow by approximately 8% in the next 5-6 years, led by increasing public investment in infrastructure and a pickup in private sector investment.

When it comes to finding the best stocks to invest in, the first thing most investors think of is stocks that are trending up which will give them multifold returns.

From electronic manufacturing services (EMS) to real estate, these sectors have not only weathered economic uncertainties but have also delivered impressive returns.

However, looking in to 2025, the key question remains: Will these sectors continue to dominate or will their growth plateau?

In this article, we will examine the leading sectors of 2024, explore the factors driving their success, and assess whether there is still an opportunity for growth in the year ahead.

#1 Electronic Manufacturing Services (EMS)

The Indian electronics manufacturing industry is experiencing a significant boom. With a domestic production value exceeding US$ 101 bn in FY23, the sector is poised for further growth.

This expansion is driven by several factors, including a growing domestic market for electronic products, government initiatives promoting local manufacturing, and a skilled workforce.

With rising per capita disposable income and private consumption, India has emerged as one of the largest markets for electronic products in the world.

The EMS industry includes manufacturing of several electronic items such as mobile phones, IT hardware, consumer electronics, strategic electronics, industrial electronics, wearables and hearables, auto electronics, LED lighting, and electronic components.

The global EMS landscape is dominated by a few major players, with Asian companies holding a significant share. Leading names include Foxconn (Taiwan), Hon Hai Precision Industry (Taiwan), Pegatron (Taiwan), Wistron (Taiwan), and Flex (Singapore).

China has emerged as the undisputed leader in EMS, accounting for a substantial portion of global production. This dominance can be attributed to several factors such as cost advantage, infrastructure and ecosystem and government support.

However, after covid, Indian companies have taken a huge stride on the back of geopolitical tensions and supply chain disruptions that have prompted some major brands to diversify their manufacturing footprint beyond China. This trend is known as the "China + 1" strategy.

The Indian EMS industry has seen solid growth over the last few years on the back of soaring domestic demand, China + 1 strategy by global manufacturers and government initiatives.

Below is the table showing performance of top EMS companies in India over the past few years:

Company Name	Sales Growth CAGR (2020-2024)	EBITDA Growth CAGR (2020-2024)	PAT Growth CAGR (2020-2024)	Return over last 1 year %
Dixon Technologies Ltd	42%	33%	33%	195%
PG Electroplast Ltd	44%	60%	159%	309%
Kaynes technology India Ltd	49%	56%	112%	173%
Amber Enterprises Ltd	14%	12%	-4%	98%

Source: Equitymaster

Outlook:

• Dixon Technologies management remains optimistic about sustaining strong revenue growth driven by demand and new customer acquisitions. The company says mobile phones are expected to dominate growth, with IT hardware and component businesses following.
• PG Electroplast upgraded its guidance from Rs. 42.5 bn to at least Rs 48.5 bn indicating a robust 77% revenue growth for FY25. The company is betting on positive momentum in the TV outsourcing market, with ongoing efforts to acquire new clients and maintain growth.
• Kaynes Technology is optimistic about the growth potential in the smart metering segment despite initial resistance to installation in certain states. The company anticipates substantial growth in sectors such as industrial, IoT, IT, aerospace, and railways.

Challenges:

• Limited Local Component Ecosystem: Currently, India relies heavily on imported electronic components, increasing production costs and dependence on external factors. Any delays to the supply chain can dent the company's growth prospects.
• Competing on Cost: Established EMS players in China, have a significant cost advantage due to economies of scale and well-established infrastructure. Indian companies need to focus on operational efficiency, skilled workforce development, and exploring automation to remain competitive.

#2 Water Treatment and Infrastructure

Water and wastewater management is a promising subsector in India's environmental technology segment.

India's demand for water is projected to be twice as much as the available supply by 2030. To overcome these challenges, public and private sector facilities have ambitious plans to develop comprehensive water and wastewater treatment and distribution infrastructure.

According to a 2022 Frost & Sullivan report, the Indian water and wastewater treatment market will likely reach US$ 2.1 bn by 2025 from US$ 1.3 bn in 2020, registering growth at a compound annual growth rate (CAGR) of 9.7%.

Various governmental initiatives, such as the Atal Mission for rejuvenation and urban transformation, national mission for clean Ganga, Jal Jeevan Mission, and community drinking water schemes, contribute to the growth of the Indian water and wastewater treatment market.

The Jal Shakti Ministry launched the Jal Jeevan Mission, designed to provide piped drinking water to 146 m households in 700,000 villages by 2024. The mission earmarked a budget of US$ 51 bn for states to increase household water connection coverage from 18.3% in 2019 to 100% by 2024.

This ambitious project is creating opportunities for suppliers of water meters, water quality monitoring systems, water management-related IT systems, tertiary treatment technology, and water-related Engineering, Procurement, and Construction companies.

In the medium term, the rapidly diminishing freshwater resources and growing wastewater complexities are expected to drive the demand for wastewater treatment technologies in India.

Below is the table showing performance of top companies in the water treatment and infrastructure segment in India over the past few years.

Company Name	Sales Growth CAGR (2020-2024)	EBITDA Growth CAGR (2020-2024)	PAT Growth CAGR (2020-2024)	Return over last 1 year %
VA Tech Wabag Ltd	3%	14%	31%	182%
Ion Exchange (India) Ltd	12%	19%	20%	19%
Shakti Pumps Ltd	38%	108%	120%	502%
Roto Pumps Ltd	20%	32%	34%	62%

Source: Equitymaster

Outlook:

• VA Tech Wabag Ltd’s management expressed confidence in sustaining growth momentum with a medium-term revenue growth outlook of 15% to 20% CAGR over the next 3-5 years by focusing on emerging markets such as Middle East, Africa, Indian subcontinent, Southeast Asia, and CIS countries.
• Ion Exchange (India) Ltd’s expects H2 FY25 to outperform H1 FY25 with projected growth of 15-20% for the current year on the back of a strong inquiry bank with the potential for large ticket contracts.
• Shakti Pumps has given a revenue estimate of Rs 5 bn for the next quarter and Rs 25 bn for the entire year. Guidance for gross margins and EBITDA margins is in the range of 35-40% and 16-18% respectively.

Challenges:

• Aging infrastructure: One of the most significant challenges water utility companies' faces is dealing with aging infrastructure. Many cities and regions have water distribution systems that are decades if not centuries old. These aging pipes, pumps and other components require significant investments for repairs and replacements.
• Population growth: With an ever-growing global population, water demand has increased in households and industries. Meeting this demand while ensuring sustainable water management is a significant challenge.
• Regulations and policy interventions: Regulatory bodies impose more stringent rules and carbon taxes to address pollution and environmental concerns. This adds complexity to the already challenging task of managing water resources efficiently.

#3 Real Estate

The real estate sector is one of the most globally recognized sectors. It comprises of four sub-sectors - housing, retail, hospitality, and commercial.

The construction industry ranks third among the 14 major sectors in terms of direct, indirect and induced effects in all sectors of the economy.

In India, the real estate sector is the second-highest employment generator, after agriculture.

India's real estate sector is expected to expand to US$ 5.8 tn by 2047, contributing 15.5% to the GDP from an existing share of 7.3%.

From premiumisation in the existing pockets to the addition of newer micro markets thanks to rapid urbanisation and infrastructure development, the country's leading real estate players are placing their bets on the changing landscape of Indian cities.

Residential demand has been particularly strong, while the luxury market saw a boost from high net worth individuals and non-resident Indians (NRIs) keen on high-end amenities in cities like Gurugram, Mumbai, and Bengaluru.

India's commercial real estate market is also currently buoyed by strong GDP growth, urbanisation, favourable government policies, and an evolving workspace landscape.

This growth is primarily driven by global capability centres (GCCs) and India-facing businesses, which are seeking modern office spaces to accommodate their expanding operations.

Riding on the back of strong surge in demand in residential as well as commercial real estate, real estate development companies have achieved significant growth in their revenues and margins thereby reducing overall debt levels in the industry and improving their financial health.

Below is the table showing performance of top companies in the real estate segment in India over the past few years.

Company Name	Sales Growth CAGR (2020-2024)	EBITDA Growth CAGR (2020-2024)	PAT Growth CAGR (2020-2024)	Return over last 1 year %
Macrotech Developers Ltd	-5%	9%	20%	58%
Oberoi Realty Ltd	19%	23%	29%	65%
DLF Ltd	1%	17%	20%	28%
Prestige Estates Projects Ltd	-1%	1%	31%	67%

Source: Equitymaster

Outlook:

• Macrotech Developers says that overall sentiment remains optimistic with strong sales across various segments and a solid pipeline for future growth. The company is aiming for Rs 15 bn in annual rental income by the end of the decade.
• Oberoi Realty is also optimistic on continued sales momentum on the back of upcoming launches in key areas of Mumbai such as Goregaon, Borivali and Thane.
• DLF says they have a strong pipeline of execution for second half of this financial year. The management aims to stabilize margins, targeting late 40s as a sustainable level.

Challenges

• Economic Volatility and Market Fluctuations: Economic downturns and fluctuations can lead to decreased property demand, stagnant property values, and increased competition among real estate businesses.
• Regulatory Hurdles and Legal Complexities: Real estate transactions are subject to myriad regulations and legalities that vary from one jurisdiction to another. Navigating complex zoning laws, property rights, and environmental regulations can be daunting.
• Rising Costs and Affordability Concerns: Escalating construction costs, land prices, and property taxes pose significant challenges to real estate developers and potential homebuyers. Affordability can limit access to housing and impact the real estate market.

Conclusion

The stock market sectors that dominated in 2024, including EMS, water treatment, and infrastructure, and real estate, have shown remarkable resilience and strong growth prospects.

With the Indian economy poised for sustained growth, these sectors have benefited from a combination of government initiatives, increasing domestic demand, and evolving market dynamics.

However, as we move into 2025, challenges such as supply chain risks, regulatory complexities, and economic volatility may temper growth.

Despite these hurdles, the outlook for these sectors remains optimistic, driven by ongoing investments and infrastructure development.

However, investors should remain vigilant and conduct thorough research into fundamentals and corporate governance to make informed decisions.

Remember the challenges before diving headfirst into any investment.

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...