Friday, 26 February 2016 00:00

Huge Scope For Commodity Consumption In India

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According to IMF World Economic Outlook for 2016, India’s GDP growth for 2016 and 2017 is likely to be 7.5%, overtaking China’s GDP growth outlook of 6.3% and 6.0% for 2016 and 2017 respectively. With India likely to be the fastest growing economy and with huge impending growth potential in the country, investors diversifying their portfolio globally should consider India.

As industrial commodity and energy prices are depressed, this article looks at the per capita commodity consumption in India as compared to the rest of the world. This will put into perspective the potential for consumption upside in the coming years.

Talwandi Sabo Power Plant

Besides depressed commodity prices being an opportunity to buy for long-term, the reason to talk about commodities and India is the initiative taken by the new government (elected in 2014) to drive economic growth through higher infrastructure spending. As this spending plan gradually translates into implementation, the demand for industrial commodities will surge.

Just to put things into perspective, India plans housing for all by 2022 and this involves building of 60 million houses in urban and rural India. Further, the smart city initiative involves big investment in developing urban infrastructure. I see significant jump in copper consumption on rising urbanization and housing sector development.

In addition, power for all by 2019, initiatives to develop road infrastructure, the make in India campaign and the digital India campaign will translate into development, increasing middle-class and rising consumption of commodities and energy.

With these demand triggers, the outlook seems bright and the chart below on per capita consumption of various commodities indicates the huge potential upside in consumption (if all growth initiatives are implemented in a timely manner).

Per Capita Consumption Of Commodities In India, China And World

Per Capita Commodity And Energy Consumption India

Vedanta Limited (NYSE: VEDL) is an Indian diversified commodity major that is also listed in the US stock exchange. The stock is currently trading at very depressed valuations due to decline in commodity and energy prices. Further, the valuations are depressed due to delay in pending merger of Cairn India with Vedanta Limited.

The discussion on Vedanta will require a separate article and I will do that in the foreseeable future. However, considering the huge potential for industrial commodities and energy sector in India, investors can keep Vedanta in the investment radar.


Image Source: Vedanta December 2015 Presentation

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