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 ---
IMPORTANT: Save the Date for the Biggest Financial Conference of The Year...

The Equitymaster Conference 2023 happens on 25th-26th Feb 2023...

If you want to discover where the market is headed for the next 10 years... and which mega-trends could potentially help you make the most wealth over the next decade...

Make Sure to Grab Your Ticket Right Now (Special Reserve Member Discount Inside: OPEN NOW)

HURRY: Grab Your Ticket Now
------------------------------

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 ---
Potential 33x Opportunity by 2030

This decade belongs to defence stocks.

We are staring at a potential 33x opportunity by 2030.

But it is absolutely important that you choose the right defence stocks to ride this opportunity.

We've already identified 3 next-generation defence stocks for you...

These companies are into developing cutting-edge military technologies where we're seeing a huge potential.

If you're a serious investor, then you should not miss these 3 stocks for anything.
* 2 out of these 3 stocks have already run up. Act fast or you might completely miss out on this big opportunity.

Full Details Here
------------------------------

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

Equitymaster's Editors on the Union Budget February 1, 2023
Our editors weigh in with their views on the budget.
What Bajaj Finance's Record Profits Mean for Investors... January 31, 2023
It is natural to assume that a company that has BNPL at its core can flounder. But Bajaj Finance proves us wrong.
Should You Buy the Dip in Adani Group Stocks? January 30, 2023
Now that bad news is getting factored in the prices, would you consider buying the dip in the Adani group stocks?
The Adani Group Stocks You Should Add to Your Watchlist January 28, 2023
Are there any Adani group stocks that look attractive post the meltdown?

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