When it comes to economic growth, transportation and logistics theme is considered as an engine for economic growth. The theme consists of industries broadly classified under three key segments which are auto original equipment manufacturers (OEMs), auto components (ancillaries) and logistics. Each present a unique investment opportunity as India as an economy marches towards the $5 trillion mark.
Transportation Theme: Even today, transportation in general remains an under-penetrated market in India. The automobile OEM sector with its presence across different products offers multiple investment opportunities including ancillaries.
One of the major advantage in favour of India is its demography. Today, automobiles are no longer a luxury but have evolved to be a necessity. As the individual disposable income increases, it is likely that auto industry will emerge as one of the beneficiaries. With the increase in population, the need for vehicles - 2-wheeler, passenger vehicles, commercial vehicles and 3-wheelers is likely to soar.
Given rising fuel prices and increased focus to reduce emissions, globally, countries have adopted EVs in a significant manner. India too is expected to follow suit thereby giving rise to multiple investment opportunities. The EV market is expected to grow at a CAGR of 49% between 2022-2030 and is expected to hit 10 mn annual sales by 2030.
Apart from these, Indian auto companies are expected to increase market share on account of China +1 and Europe+1 theme. The government is also turning the lens on import substitution with measures such as production linked incentives (PLI), Clean Tech Scheme and FAST (Faster Adoption and Manufacturing of EVs) which will add a fillip to this sector.
Logistics Theme: Logistics involves efficient transportation and storage of goods from the point of origin to the point of consumption in a timely, cost-effective manner. The largely unorganised sector was marred with inefficiencies in the past. However, in recent years, there has been a paradigm shift in the logistics sector with the move towards making it an organised sector.
In an effort to improve the logistics sector, in 2021, the government introduced the PM Gati Shakti National Master Plan for seamless multi-modal connectivity to various economic zones for logistics efficiency with technology adoption and speedier implementation. This was followed up with National Logistics Policy as a push to expand India’s manufacturing capacities. These policies are aimed at the long-term growth of the logistics and transportation sector. Formalisation of the economy, positive correlation to GDP growth, government's initiatives to reduce costs and improve efficiency, all stand to benefit the sector in the coming years.
India’s logistics market is estimated at $ 216 billion out of which organised players contributed only ~3.5%($6-7 Billion) in FY 2020. Disruption is expected as market share shifts from unorganised to organized players on the back of robust Indian e-commerce shipments growth.
The sector over the past couple of years has delivered muted performance but that is soon to change and the performance offtake could occur on a consistent basis from hereon. Thanks to the government initiatives, cost reduction and increased efficiency is likely to be a reality.
Ways to Invest
Transportation & Logistics theme is a broad one which encapsulates various sectors like passenger cars, utility vehicles, 2/3 wheelers, auto components and equipment, port and port services, tyres and rubber products, castings, forgings commercial vehicles, abrasives, to name a few. Investing individually in each of these pockets is impossible. So the easiest way to take exposure to all of these is through a mutual fund which is based on transportation and logistics as a theme.
Today, an investor has a variety of options when it comes to thematic investments and transportation and logistics is one of the themes available. If you are a long term investor and is ready to stay invested over atleast three to five years, then transportation and logistics theme is likely to deliver encouraging investment experience. The optimal approach is to invest in a staggered manner through SIP. This will ensure that as an investor you have the opportunity to accumulate units over a period of time. One can consider an allocation to this offering the satellite portion of one’s portfolio.