When was the last time you ordered something online? Today or maybe this week? It is the robust logistics environment that made it possible for you to get your orders on time. And thanks to the growing e-commerce, the logistics sector is believed to grow much faster than other sectors. Globally, transportation and logistics has been an economic growth engine in the development of an economy and the story is no different in India as well. In this article, we will look at the case of investing in this theme and the best way to go about it.

Generally, transportation and logistics can be divided into three broad components - Auto Original Equipment Manufacturers (OEMs), Auto Ancillaries and Logistics.

Auto Landscape

The auto OEM industry offers a variety of investment options due to its presence across different products spread across two-wheelers, passenger, commercial, and three-wheelers. Currently, this space is poised for growth due to various reasons such as low penetration compared to global peers, government incentives on import substitution and an increase in salary, which might lead to more spending on discretionary items such as cars.

Apart from these, Government incentives like Automotive Mission Plan (AMP) 2016-26, Production Linked Incentives (PLI), and Clean Tech Scheme have paved a clear path for the companies in this space making it attractive from a long term investment perspective. Moreover, globally, Electric Vehicle(EV) adoption has expanded significantly due to rising fuel prices and a greater focus on reducing emissions. India is anticipated to follow suit, creating a variety of investment opportunities in EV space as well.

India’s current penetration of electric vehicles stands at 3.9 per cent, while China tops the charts at 18.5 per cent. Data from the Average Monthly Sales Volumes shows that the sales of EV are on the rise, with nearly 43,500 in the first two months of FY23, up from 19,187 in the entire FY22. This is one trend which is likely to continue over the next decade and more.

Logistics

Since it entails controlling the movement of commodities from the point of origin to the point of consumption, logistics is a crucial activity for economic progress. The industry includes express cargo, rail, road, air freight, warehousing, and other value-added services in addition to shipping and port operations. India currently records relatively higher logistics costs at 13-14 per cent of the GDP which is 8-10 per cent for most of the developed economies.

One of the key drivers of logistics is the e-commerce sector. E-commerce has grown significantly in India over the last 10 years, and this huge growth has made it a major user of warehousing. By 2025, the e-commerce market is expected to be worth more than USD 100 billion, growing at a CAGR of more than 25 per cent. Owing to the faster growth of e-commerce, the B2C segment’s share of domestic express market and the other sectors is likely to grow even more in the future.

In addition, the regulatory environment is complex due to multiple regulations governed by various stakeholders. As a means to address these anomalies, the Indian government has launched a new policy called the National Logistics Policy (NLP), which aims to make it easier for goods to move around and make India more competitive in terms of logistics.

This policy reaffirms the government’s commitment to growing and developing the logistics space. The NLP might push India to the top of the logistics chain by reducing transportation costs and streamlining the formerly disjointed logistics sector. One crucial area is warehousing, where a lack of standards and rules has resulted in varying state interpretations of government laws. With demand going up, the logistics market, which is worth about 250 billion dollars, is expected to grow at a rate of 10–12 per cent CAGR and reach 380 billion dollars by FY25.

If you are a savvy investor and would like to tap into these opportunities, then investing in a transportation and logistics-based thematic fund would be an ideal approach. Since this is a thematic offering, investors should approach this investment with at least a five-year horizon such that the thesis play out. Also, one can stagger the investment through an SIP such that over long term, the cost of acquisition evens out.

(The above-given article has been attributed to Chandrakant K Amritkar, Founder of Amritkar Services LLP)