March 8, 2018

Services Industry Analysis

ALWAYS – INVEST IN WHAT YOU KNOW & WHAT YOU CAN UNDERSTAND. DEVELOP CURIOSITY AS A TRAIT

Services Industry Analysis

Must know facts:

  • In the sense of economics, services are any functions or tasks, performed by an individual or a group of individual, for which there is a demand and hence a price is determined if it is available in the relevant market. Services are sometimes referred to as intangible goods.
  • The services sector is projected to grow at 8.3 per cent in 2017-18, as against 7.7 per cent in 2016-17, contributing about 66 percent to the Indian GDP.
  • In 2016-17, software services exports, which account for 45.2 per cent of total services, declined by 0.7 per cent due to a challenging global business environment and pricing pressure on traditional services.
  • The share of the services sector is 60.7 per cent of the FDI equity inflows during 2016-17. (Economic Survey 2016/17).

 

Influencing Factors for price change:

  1. Stocks in services sector are best judged when benchmarked against – ‘NIFTY SERV SECTOR’ indices.
  2. Watch out for any new flows which highlights FDI inflows in any forms to – the Indian services sector – most prominent of all –  financial, banking, insurance, non-financial/business, outsourcing, research and development, courier and technical test analysis.
  3. News from NSDC – National Skill Development Corporation. This highlights the news trends in ‘skill sets’ acquired by people overtime & its probable growth potential.

 

Understanding the Industry:

Services sector is composed of broad spectrum of service providing entities spread throughout the Country. In a country like India, having a huge size of population, services sector has its huge potential. Development of services sector can transform this burden of large size of manpower into an asset by its proper utilizations and thereby can generate a huge size of income for the nation as a whole.

The services sector usually covers a wide range activities from the most sophisticated information technology (IT) to simple services provided by the unorganized sector like the services of the plumber, masion, barber etc.

Importance of service sector is well recognised everywhere. Tom Peters, a renowned author once said, “When you build a manufacturing plant, it starts depreciating on the day it opens. The well served customer, on the other hand, is an appreciating asset. Every small act on his or her part ups the odds for repeat business, add-on business and priceless word-of-month referral.”

Among the three important sector (viz., agriculture and allied, secondary sector and services sector), contributing to the development of the economy of a country, the contribution of services sector is increasing steadily over the past few years. In most of the developed countries of the world, the services sector is contributing the major portion of its Gross Domestic Product and generates three times more employment than manufacturing sector.

The services sector is not only the dominant sector in India’s GDP, but has also attracted significant foreign investment flows, contributed significantly to exports as well as provided large-scale employment. India’s services sector covers a wide variety of activities such as trade, hotel and restaurants, transport, storage and communication, financing, insurance, real estate, business services, community, social and personal services, and services associated with construction.

(Source :Article published in economicdiscussion.net)

 

Estimated Market Size:

The services sector is the key driver of India’s economic growth. The sector contributed around 53.8 per cent of its Gross Value Added in 2016-17 and employed 28.6 per cent of the total population. Net services exports from India grew 14.6 per cent in the first half of 2017-18 and the sector attracted 60.7 per cent of India’s total FDI inflows.

 

Road Ahead:

Services sector growth is governed by both domestic and global factors. The Indian facilities management market is expected to grow at 17 per cent CAGR between 2015 and 2020 and surpass the US$19 billion mark supported by booming real estate, retail, and hospitality sectors. The performance of trade, hotels and restaurants, and transport, storage and communication sectors are expected to improve in FY17. The financing, insurance, real estate, and business services sectors are also expected to continue their good run in FY17.

Cultural services is another important area which include ‘recreation and entertainment’ and ‘radio and TV broadcasting’ besides other related cultural services. In a modern post industrial knowledge based economy, cultural activities are becoming increasingly important. There is positive correlation between culture and employment which is growing year after year.

In India, a large number of people are getting viable employment by engaging themselves in various cultural activities as writers, publishers, librarians, musicians, painters, sculptors, singers, dancers, choreographers, photographers, actors etc. cultural activities also support other economic activities like cultural tourism. Well, now thats a totally a different topic by its own – lets not get there :).

The implementation of the Goods and Services Tax (GST) has created a common national market and reduced the overall tax burden on goods. It is expected to reduce costs in the long run on account of availability of GST input credit, which will result in the reduction in prices of services.

 

Top Stocks in the industry:

Services is an integral part of all business entities, hence read the above article & stock pick based on industry verticals which you anticipate has more to offer. (There are gamut of stocks that fall under services – check out NIFTY Service Sector Index).

(Please note above stocks are not recommendations, they are purely for information purpose only)

 

Information Source / References: IBEF, economicdiscussion.net, The Economic Survey 2016–17 & 17/18, Agricultural and Processed Food Products Export Development Authority (APEDA), Department of Commerce and Industry, Union Budget 2017–18, Press Information Bureau, Ministry of Statistics and Programme Implementation, Press Releases, Media Reports,

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