Logistics – With Great Responsibility comes Great Opportunity!

Multiple efforts are underway to make India’s logistics sector more robust. A key thorn in India’s ambitions to be a manufacturing powerhouse has been its high traditional logistics cost – estimated to be 14% of GDP. A high cost of logistics puts a large strain on the cost of manufacturing – proving to be a disadvantage at home and in the competitive export market.

To tackle this, multiple programs are focused on improving India’s logistics sector – such as PM Gati Shakti, National Logistics Policy, Bharatmala, Sagarmala, UDAN. Recent reforms such as GST are also acting as significant contributors to logistics performance. Significant investments into infrastructure aim to provide multiple modes of transportation and logistics, such as road, rail, shipping, and air. With urban and rural infrastructure improving, last mile delivery also is easier and more predictable for businesses.

Government’s Aggressive Infra Targets to improve Transportation Efficiency and Sustainability

The shift from unorganized to organized players, and overall growth of GDP & e-commerce industry could be a significant boost. The unorganised sector within Indian logistics has a significant share of about 90%. The market in India is so fragmented, that as per analyst estimates, the top 10 companies garner about 1.5% of logistics sector revenues – significantly lower than peers such as US (15%) and China (7-10%). Over medium term, strong economic tailwinds, technology-led logistics companies - especially those catering to e-commerce - will lead to low-cost and reliable logistics services. As the economy grows, organized players have the potential to grow faster than estimated and to achieve more than estimated 1015% market share by FY26.

India on the cusp of a significant shift in 
than share of large, organised logistics players

E-commerce has grown significantly faster  
GDP, and could surpass past growth

Government Efforts towards Logistics Space

The government has set numerical targets for improving logistics performance. They wish to reduce cost of logistics in India to be comparable to global benchmarks by 2030. On the Logistics Performance Index ranking - endeavour to be among top 25 countries by 2030. The idea is to create data driven decision support mechanism for an efficient logistics ecosystem.

Conclusion

Market size of Logistics sector in India is INR 16 lakh crores (as of CY2022), and the same is expected to grow to over INR27 lakh crores by 2026. Significant increase in the share of organised logistics players offers opportunity to investors. From an economic point of view, it is in our interest to have a robust logistics ecosystem, as it functions as the backbone of an economy. Inefficiencies in the logistics system could cascade in the economy in terms of higher costs, wastages, etc. In this light, efforts made by the government to improve policies and processes are a significant reform. Investments made towards improving the logistics infrastructure could have a multiplier effect on the overall economy in the long run.

With multiple tailwinds improving the outlook for logistics sector in India, the sector becomes an interesting investment opportunity. One way to participate in this story could be investing in our new fund offering (NFO), the HDFC Transportation and Logistics Fund. The NFO period closes August 11, 2023.

Sources: Morgan Stanley Research, Avendus Spark, Indian Railways, Niti Ayog, Press Information Bureau, Union Budget, and other publicly available information

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HDFC Transportation and Logistics Fund: An-open ended equity scheme investing in Transportation and Logistics themed companies