Thursday, May 26, 2016

Did Modi Make or Break These 15 Industry Sectors?

Not every industry sector was fortunate under the first two years of Modi’s governance. While the biggest beneficiaries were housing, housing finance, life insurance, general insurance, coal, commercial vehicles, investment banking etc, the adverse hits were taken by sectors like banking, premium real estate development, manufacturing, logistics, power, infrastructure etc. Several other sectors like e-commerce, startups, consumer durables, services etc are booming on their own, while NBFCs are making the best of the void created by the baking crisis.

Housing & Housing Finance:

Modi Government's biggest achievement to date perhaps has been the fillip given to affordable housing companies and affordable housing finance companies. But the traditional premium real estate sector is still languishing due to oversupply and high debt.


With Jan Dhan, extension of Direct Benefits Transfer scheme, and new banking licences, Modi Government's performance in banking should have been rock-solid, but reluctance to take on the NPA issue swiftly and boldly has upset all the other gains in this vital sector.


Modi Government has not done anything dramatic for the sector so far, but it has not upset the apple-cart either. The result is that NBFCs are today capitalizing on the big void created by banks pausing on even working capital loans and SME loans, and that explains why the sector is booming. Many are also eyeing the new on-tap bank licences.


One of the biggest beneficiary sectors of Modi regime, as things have finally started moving and that too through the auction route, making Central and a few State Governments richer. But much of the credit also goes to Supreme Court.

Commercial Vehicles:

Another beneficiary sector of Modi Government's economic revival plans. After a gap of around 5 years, commercial vehicle sales have started showing an uptick driven by the revival in mining industry. But there was such an uptick in 2011 too which fizzled away soon, and the industry is waiting with bated breath to see whether the revival will hold this time.


Despite the big momentum by way of Make-in-India, it is an open secret that manufacturing sector has still not revived much. The sector is still bogged down by excess capacities created during the 2003-08 period’s high growth, high investment cycle on one side, and the huge debt piled up to create that kind of capacities on the other. The non-passage of GST hasn't helped the sector either.


Another sector that is waiting to fly only if the Goods & Services Tax would pass Parliament. The slow growth in mining operations has also affected the sector, which is nowadays largely reliant on the boom in e-commerce.

Investment Banking:

Clearly a sector that has benefitted from Modi Government's pro-market reforms. Credit is also due to a more proactive Securities & Exchange Board of India (SEBI), under which IPOs have become much more reasonably priced, driving a boom in the primary market, favouring investment banks.

Consumer Durables:

While the government hasn't done much to boost the segment in any of its budgets, apart from finding new ways to milk it, the segment is on a roll due to consumer's penchant for high-tech but affordable durables like HD televisions, smartphones, laptops, washing machines, and refrigerators. Consumer durables financiers too are booming.


Another segment where neither Government's action nor inaction has occurred to influence the sector either way, but which is booming anyway thanks to the novelty factor like it happened in US between 1995-2005 and in China between 2005 to 2015. But with almost none of the Indian e-commerce firms making any kind of profits, and promoter shares in the companies dropping fast, it remains to be seen how many of them will survive after the novelty wanes off. Malls or shops aren’t dead in US or China!


While the startup phenomenon since 2008 has taken India by surprise including Governments, it goes to the credit of Modi that he has tried to support the phenomenon with funnily named morale boosters like 'Startup India Standup India'. Too early to predict whether many startups will be benefitted by the program, or will continue to be driven solely by innovating on disruptions and unmet needs.


A win for Modi Government that ranks as high as its win in affordable housing. Passing the Insurance Bill in 2015 opened up the life and non-life sectors to attract foreign equity investments up to 49% of the equity from the prevailing 26%. It will also cause the listing of major private sector insurers in the near future. Passing the Insurance Bill was a rare situation where Government approached Congress and they complied, despite stiff opposition from left-most and socialist parties.


Power is one sector where Modi Government has apparently focused on a lot and done a lot, but is taking time to revive due to the daunting challenges like oversupply and continuing debt with no respite in the horizon. Government’s ambitious targets for solar and wind power on the other hand are likely to underperform with no major funding source opening up till now.


A reasonable performance under Modi and Nitin Gadkari, but still way to go before they can even dream of catching up with Vajpayee’s term or UPA-1. Still, one of the most promising sectors to watch out for within the next three years. Problem number one here is bloated balance-sheets of all the core players due to senseless equity expansion and even higher debt.


Yet another sector which no government till now has managed to derail, and Modi is no exception. A sector dominated by IT, BPO, & Financial Services, it goes on to prove the adage that India grows while the politicians sleep. However, external governments can call an end to the party, and a Trump win is likely to affect the outsourcing sector adversely which is already feeling the heat of automation.

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