The #1 Investment Theme for 2024

2023 is coming to an end.

And almost every investor is now looking for the same thing.

The "Next big thing" to look forward to in 2024.

So today, let's discuss the #1 investing theme to follow in 2024.

You might think we're going to discuss some new emerging trend like the metaverse, or AI, or something as cool as creating a sovereign nation at sea (yes, this is actually in the works in the US!).

But in 2024, it's all about sticking to the basics... and focusing on the sectors that could benefit with the elections around the corner.

We'll cover a different editorial discussing the emerging trends to look out in the coming days... but today, let's talk about the auto sector and the auto ancillary sector.

India's automobile sector, a cornerstone of the nation's economic landscape, stands as a testament to the country's burgeoning industrial prowess and technological advancements.

This dynamic sector has witnessed remarkable growth over the past few decades, propelled by a burgeoning middle class, rising disposable incomes, and favourable government policies.

Its market size was valued at US$ 108 bn in FY23, expected to reach US$ 160 bn by 2027.

Not only that, it generated employment for over 19 million (m), making it a sector of utmost importance for the country.

The roots of India's automobile sector can be traced back to the early 20th century, with the import of automobiles primarily for the use of the elite.

However, the industry's true genesis occurred post-independence, with the establishment of manufacturing plants by global automotive giants such as Hindustan Motors, Premier Automobiles, and Fiat.

The 1970s and 1980s witnessed a period of consolidation and growth, marked by the emergence of homegrown players like Maruti Suzuki and Tata Motors.

Today, India's automobile sector stands as a global powerhouse, boasting a production capacity of over 26 million vehicles annually.

The sector accounts for 40% of the country's manufacturing GDP and approximately 6.5% of the overall GDP. It has grown substantially from 2.77% in 1992-93 to this 6.5%.

India aims to double the automobile sector's size to US$ 195 bn by end of year 2024.

Contributing Factors

Several factors have contributed to this meteoric rise and could continue to work in its favour.

A flourishing middle class, with growing aspirations and disposable incomes, has made the demand for personal vehicles even larger.

The urban landscape of India is expanding at a rapid speed and improved infrastructure has created an environment that is very conducive for automobile usage.

India is the world's largest manufacturer of tractors, 2 wheelers, and 3 wheelers.

The second largest manufacturer of buses...

The third largest in manufacturing of heavy trucks...

And finally, the fourth largest when it comes to car manufacturing.

In 2013, the Indian automobile industry was the 10^th largest in the world, which has changed 3^rd largest in 2023 after beating Japan.

Government Initiatives

The government is also leaving no stone unturned to ensure that the ride is an upward one.

Through initiatives like the Make in India program and the introduction of strict emission norms, the government has nurtured a favourable environment for domestic manufacturing and also pushed the implementation of eco-friendly technologies.

The government has also allowed 100% FDI under the automatic route specifically for the auto components sector.

It has also introduced a Performance Linked Incentive (PLI) scheme for the automobile and auto components sector with an outlay of US$ 3.5 bn.

The scheme proposes up to 18% financial incentives to boost domestic manufacturing and attract more investments into the sector.

This is expected to rake in a capex of US$ 9.58 bn in the next 5 years.

The International Energy Agency (IEA) in a finding suggested that currently, out of every 1,000 Indians, only 22 own cars.

But IEA predicts that by 2030, this number will change to 70 cars per 1,000 individuals and to 175 cars per 1,000 individuals by 2040.

The Electric Vehicles Space

Another factor which will contribute greatly to the automobile industry will be Electric Vehicles (EVs).

Indian consumers are increasingly becoming aware of the environmental benefits of EVs and are willing to consider EVs for their next vehicle purchase. A survey by Deloitte found that 70% of Indian consumers are willing to consider an electric car for their next vehicle, compared to the global average of 52%.

With the governments "Net-Zero Target" that it aims to achieve by 2070, the focus has shifted to this industry big time.

The government is encouraging the acceptance of EVs by introducing various incentives and subsidies.

The Faster Adoption and Manufacturing of (Hybrid &) Electric Vehicles (FAME) India scheme, launched in 2015, provides financial support for the development, manufacturing, and purchase of EVs.

Additionally, the government has set ambitious targets for EV adoption, aiming to have 30% of all new vehicle sales be electric by 2030.

Earlier this year, in February 2023, the Geological Survey of India (GSI) discovered an estimated 5.9 million tonnes of lithium reserves in Jammu and Kashmir. This is the first major lithium discovery in India.

It has the potential to significantly boost the country's electric vehicle (EV) industry.

In the coming months, the Indian government plans to auction off the lithium reserves.

Several international mining companies have expressed interest in bidding for the reserves.

This growth will be driven by all the factors listed above, the increasing popularity of EVs among young consumers, and the growing demand for sustainable transportation.

Conclusion

India's automobile sector stands at the crossroads of opportunity, poised to play a pivotal role in shaping the nation's future mobility landscape.

The top contenders to keep an eye on will be players like Tata Motors, Maruti Suzuki, Mahindra and Mahindra (M&M), Hero MotoCorp, TVS Motor Company, and the likes.

To know more, check out the top automobile stocks on Equitymaster's stock screener.

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...