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Sectors Likely to Provide Best Returns to Investors in the Future

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04 Oct 20246 mins readBy MOFSL

India is all set to become a $10 trillion economy within the next 5 to 7 years. India’s GDP growth was 8.15% in 2024, with a sharp increase of 7.8% in the last quarter of 2023.

The Indian Stock Exchange Market comprises 22 sectors in total. With the increasing interest of retail investors as well as foreign institutional investors, we are on track to validate India's growth story.

However, achieving the ambitious target of becoming a $10 trillion economy is challenging, as India's current GDP stands at only $3.95 trillion. The rise in the last quarter can be attributed to private consumption, exports, and manufacturing.

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During this journey, some sectors will experience significant growth, while others will grow more gradually.

Here is a list of sectors expected to outperform others in India as we move towards 2025-26:

Automobile and Auto Components

The automobile sector in India is divided into four main segments: two-wheelers, three-wheelers, passenger vehicles, and commercial vehicles.

In FY23, two-wheelers and passenger vehicles dominated, holding market shares of 75% and 18%, respectively. The Indian automotive industry is projected to reach a value of $ 300 billion by 2026.

India is the largest producer of tractors, the second-largest manufacturer of buses, and the third-largest producer of heavy trucks worldwide.

In FY23, the Indian auto component industry achieved its highest-ever turnover of $ 70 billion, and it is projected to grow to $ 200 billion by 2026.

The growth of the Indian auto components industry will be driven by export demand.

During the first half of FY24, the turnover of the automotive component sector increased by 12.6% year-on-year, amounting to Rs 2.9 lakh crore. The sector is expected to witness a projected valuation of $200 billion.

India has a major growth potential for passenger vehicles as we have only 24 cars per 1,000 people. So, we stand third lowest in terms of car penetration among the top 13 global markets. This means there is an immense scope for growth as the middle class becomes more aspirational.

Cement industry in India

India is the world's second-largest producer of cement with an installed capacity of 600 million tonnes per year and current production at 391 MTPA.

In FY21, cement demand was driven by rural housing (29%), urban housing (25%), infrastructure (23%), low-cost housing (12%), and commercial use (11%). It means that construction is a big project in all areas of the country.

The government is planning to invest Rs 10 lakh crore in infrastructure projects, Rs 2.4 lakh crore for railways, and plans to build 100 major transport projects worth Rs 75,000 crore for better connectivity to ports, coal, and steel.

The Mumbai-Ahmedabad Bullet Train Corridor is helping to boost the cement industry. It uses about 20,000 cubic metres of cement each day—enough to build eight 10-story buildings.

India's cement exports reached Rs 4,894 crore in FY24, while imports totaled Rs 1,386 crore. India exports cement to countries like Sri Lanka, Nepal, the United States, the UAE, and Bangladesh.

Government programs like "Housing for All" are expected to boost cement demand. The Indian residential real estate market was valued at Rs 18.89 lakh crore in 2024 and is projected to reach Rs 57.34 lakh crore by 2029, with growth expected in rural and affordable housing.

The famous industrialist Dhirubhai Ambani once said, "The government is your biggest consumer." Considering that the private sector holds 98% of this industry and the numerous government projects underway, the cement industry is certainly set to boom in the next 5 to 7 years.

Fast-Moving Consumer Goods Sector

The FMCG sector in India has experienced remarkable growth in recent years. The success of the FMCG sector can be attributed to rising incomes, changing lifestyles, and increased urbanisation.

In 2023, the Indian FMCG market reached a value of $ 121.8 billion. Total revenue for the FMCG market is projected to grow at a CAGR of 27.9% from 2021 to 2027.

One significant trend in the Indian FMCG sector is the rising demand for healthy and organic products. As consumers become more health-conscious, they are seeking natural, organic, and chemical-free options.

In response, many FMCG companies in India are introducing new products and investing in research and development to cater to this growing demand.

Another scary but true fact is that India has 780 million internet users, with an average Indian spending around 7.3 hours per day on their smartphone. This means they are targeted by a number of ads, which will eventually lead to higher purchases from an Indian consumer.

The Indian government has also introduced initiatives to help grow the FMCG sector, such as the "Make in India" program, which aims to boost domestic manufacturing, and the

National Food Processing Policy, which focuses on reducing food waste.

The FMCG industry in India is expected to grow fast in the coming years because of consumer demand, and favourable government policies.

However, the sector may face challenges, including increased competition, rising raw material costs, and changing consumer preferences.

Conclusion

For a wise investor, investing in India's expanding sectors can be a good strategy for long-term gains.

However, remember that not every growing industry will yield exceptional returns. Therefore, diversification is the most effective way to choose the best sectors for investment in India.

By spreading your investments across multiple sectors that you expect to grow, you can lower your risk and ensure you don't miss out on opportunities in any booming industry.

 

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Disclaimer: The stocks, companies, or financial instruments mentioned in this blog are for informational purposes only and should not be considered as investment recommendations. It is advised to consult with your financial advisor before making any investment decisions. Investment in securities markets are subject to market risks, read all the related documents carefully before investing. Investors are strongly encouraged to carefully read the risk disclosure documents prior to participating in market-related investments or trading activities. Due to the volatile nature of financial markets, no guarantees can be made regarding investment returns. Motilal Oswal Financial Services Ltd. does not offer any assured returns on market-linked securities. Please note that past performance of stocks or indices is not indicative of future results.
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