India's Third Giant Leap

This Leap Could Potentially Generate Gains
Far Bigger than Anything We Have Seen in Our Lifetimes




**Important: We hate spam as much as you do. Check out our Privacy Policy and Terms Of Use.
**By submitting your email address, you also sign up for Profit Hunter, a Free-for-life newsletter from Equitymaster,
which offers the most profitable investing ideas in India.


AD

Use This Key Indicator to Buy Stocks in 2023

Dec 2, 2022

Use This Key Indicator to Buy Stocks in 2023

In 1970, Asian Paints bought a mainframe computer for Rs 80 m. It thus became one of India's first private companies to own one.

Since then, the company has digitised its inventory and billing management, which helped save time and costs.

By the end of the decade, Asian Paints started using computerised colour tinting machines. The company also trained employees to use personal computers in the 1980s and established a customer care helpline in the 1990s.

From centralised order booking to supply chain management to storage and retrieval systems were automated in 2008.

So, for more than 50 years, Asian Paints has been collecting data on the colour, size, and quantity of paints purchased all over India. They continue to store proprietary data on paint demand for each neighbourhood. This allows the company to predict paint demand well in advance.

--- Advertisement ---
India's Third Giant Leap

India is precisely at the same point in its growth journey that propelled nations like USA, Japan, China and South Korea to the pinnacle of economic success.

Our research suggests that India's third giant leap could potentially generate gains far bigger than anything we have seen in our lifetimes.

Our co-head of research, Rahul Shah, has already identified the first 3 stocks to ride this giant leap for you.

He is going to share his entire research... including details of these 3 stocks at his upcoming event.

See Full Details
------------------------------

Recently, the company implemented state-of-the-art automatic truck-loading systems in the two new plants at Mysuru and Visakhapatnam. They also use advanced artificial intelligence (AI) and machine learning (ML), to constantly improve the overall demand forecast.

I now see several companies going the Asian Paints way.

Yes, it's true. More than two thirds of the listed companies in India have been undertaking technology-led capex over the past few years. Even the RBI capex data and company annual reports point to this fact.

There is a sharp increase in the share of intangible assets (other than goodwill) in the balance sheets. And the rise in the share of R&D expenses has hardly been witnessed earlier.

Sceptics may want to dismiss these data points as one-offs in the post pandemic recovery phase. But they couldn't be more wrong.

Here again, there are several data points that suggest the capex will continue. More so, the technology related ones.

First of all, India's corporate profits to GDP at 4.5% is currently at a decade high. Though last seen in 2012, the sharp rise in earnings is backed by healthy balance sheets rather than macro tailwinds.

Average operating margins, currently at 16.7%, were last seen in 2005. The average net margin of 8.7% was last crossed in 2011.As companies were left loaded with debt in the previous capex cycle, there were few capacity additions in the past decade.

This time around, India's corporate debt to GDP ratio, at about 60%, is significantly lower than the global average.

Neither have companies splurged on expensive inorganic growth. Nor have they kept their balance sheets leveraged. On the contrary, most chose to get leaner during the pandemic by paying off debt obligations.

What is more, the lenders themselves are in good financial health. Not just private sector, but even public sector banks have seen profits soar in the past few quarters.

chart

Therefore, even as the world grapples with high interest rates, both Indian corporates and their lenders are well equipped to take the risks in their stride. Major systemic risk due to the capex boom is almost ruled out.

Rather, the onset of the capex boom (both technological and physical) could take the share of corporate profits to GDP even higher in the coming decade.

--- Advertisement ---
A Special Opportunity Just for Equitymaster Readers

We are organizing a star-studded conference this month...

Where we have invited some of the biggest names in the financial industry to share their investing ideas on what they believe to be the biggest wealth creation opportunities of the coming decade.

I'm talking about investing masterminds like Kenneth Andrade, Ashwin Ramesh, Ajit Dayal, Nithin Eapen and many other giants of the industry...

What's more... this event is completely virtual, so you can attend it from the comfort of your home.

All the deep research and industry knowledge you will gain access to during this conference...

Will allow you to craft a game plan for potentially generating the biggest returns possible from the hottest opportunities over the next 10 years...

Click Here For Details
------------------------------

In other words, the earnings per share, or the denominator of your P/E ratio, could go up. This means stocks could start looking cheaper.

So, as an investor, the least you could do is ensure the companies you own are doing their bit in riding the capex boom. They should not only be allocating their capital judiciously but also use the rise in cash flows and profits to build up capacities.

Doing this will ensure that your stocks offer no negative surprises in earnings in 2023 and beyond.

Warm regards,

Tanushree Banerjee
Tanushree Banerjee
Editor, StockSelect
Equitymaster Agora Research Private Limited (Research Analyst)

Recent Articles

Rahul Shah's Secret to 94%, 116% and 144% Gains in a Year... February 8, 2023
A know nothing investor's path to big gains.
Look Beyond the Sensex for Life Changing Wealth February 7, 2023
I believe the Indian stock markets are on their way to create huge wealth. However, to participate in this once in a lifetime opportunity, you need to look beyond the benchmark index.
How India Will Become a Developed Nation February 6, 2023
This is how India's third giant leap will convert the economy into a developed one.
India is Set for its Third Giant Leap February 3, 2023
Are you ready to cash in on one of the biggest opportunities of our time?

Equitymaster requests your view! Post a comment on "Use This Key Indicator to Buy Stocks in 2023". Click here!