The electric vehicle industry in India is accelerating, and demand is picking up. EV sales have increased more than 2,200 percent during the past three years, providing an opportunity for investment in the Indian EV space. The government is assisting in the process. Several factors, including the rising population, the continued war between Russia and Ukraine, and the hassle of dealing with oil imports, have buoyed inflation and enhanced policies that speed up the EV transition.
The growth targets for the rollout of electric vehicles are robust. For the rollout to be successful, India will need new fleets of cars, charging stations across the country, and the ability for consumers to charge their vehicles at home or work. India will also need consistent fleets of EVs, and this will increase the demand for batteries that fuel electric cars.
Despite the very ambitious goals of accelerated mobility to electrification, India is at the nascent stage. The largest untapped market with so many moving parts, investors should be able to take advantage of the increased focus.
The situation in the Indian EV market could provide ample trading opportunities within the contracts for differences (CFD) market.
India's EV Growth Targets
The Indian electric vehicle industry is forecast to move through an accelerated change. The number of vehicles in volume is expected to be the third largest worldwide by 2030. India has a very ambitious target. Policymakers have projected that the country will be entirely electrified by 2030. According to the Center for Energy Finance, the Indian EV market will increase to $206 billion by 2030, requiring an investment of $180 billion in vehicle production and charging infrastructure. In the short term, there are projections that the Indian EV market will grow by 36% CAGR by 2026.
The increase in the demand for EVs will also help drive employment. By 2030, the industry is expected to generate 10 million direct jobs and more than 50 million indirect jobs, according to a report from IVCA-EY-Induslaw.
Additionally, the finance industry around the EV market is expanding rapidly in India. According to Niti Aayog, financing electric vehicles and charging infrastructure could be valued at more than $50 billion by 2030.
Is the Indian Government Assisting?
While the goals remain ambitious, there are opportunities for government and foreign direct investment into the Indian electric vehicle space. The Indian government has recently modified the Faster Adoptions and Manufacturing of Hybrid and Electric Vehicles Scheme to make electric two-wheel vehicles more affordable. The Indian government has provided incentives in the form of grants. These demand incentives have supported about 469,315 electric vehicles. Additionally, 6,315 buses and 2,877 charging stations have been approved in 68 cities across 25 states. Money has been provided to 50 original equipment manufacturers. One thousand five hundred seventy-six charging stations have been sanctioned across several expressways and highways.
Additionally, several production incentives schemes which are expected to be used to generate local manufacturing have been provided. The Indian government rolled out a scheme in May 2021 for battery storage manufacturing. The goal is to incentivize the domestic production of EV batteries and to reduce the dependence on imports.
Several automobile companies are taking advantage of the electric vehicle subsidies that the Indian government offers. The top players in the Indian automobile market are Tata Motors, Hyundai Motors, BYD India, and MG Motor India.
Opportunities to Trade the Players Involved in the Indian EV Market
As India's electric car sales accelerate, there will be opportunities to invest in several players looking to achieve significant market share. Some of the most prominent players are the original manufacturers; those companies focus on building automobiles and the parts needed to run a car. One of the ways you might consider looking for trading opportunities in the Indian EV space is through contracts for differences (CFDs).
What are Contracts for Differences?
Contracts for Difference (CFDs) are financial assets that allow traders to speculate on the price movements of underlying financial instruments, such as stocks, indices, commodities, forex, and cryptocurrencies. When you engage in CFD trading, you do not own the underlying asset; you own the purchase and sales price change. Since you don't own the underlying asset, you generally will not receive dividends if the company pays them to its shareholders. Since you do not have to purchase the underlying asset, you can use less capital to take a position. To do this, you must open a margin account and use leverage.
CFDs are leveraged products, meaning that traders can open a position with a fraction of the total value of the underlying asset. This scenario allows traders to take more prominent positions with less capital. For example, Ford Motor Company which makes electric vehicles, is trading at nearly $11 per share. To purchase 100 shares, you must provide your broker with $1,100. Using leverage, your broker might allow you to buy 100 shares for 10% of the value, or $110.
CFDs also allow traders to go long or short, meaning they can profit from rising or falling markets. You must first open a margin account with your broker to use leverage.
What is a Margin Account?
A margin account is a type of brokerage account that allows an investor to use capital from your broker to purchase securities. The investor must put up a certain amount of money as collateral, and the broker will provide the investor with a certain percentage of the purchase price of the securities.
Initially, you will post only the equity provided to initiate a position. If your position generates an unrealized loss, your broker will ask you to post more equity into your margin account to keep your position open. Your broker will not take a loss for you. If the equity in your account falls below a certain level, your broker will ask for more funds. This request is called a margin call. If you do not immediately post the required capital, your broker will have the right to liquidate your position and use the funds from the liquidation to pay for your realized losses.
Leverage Can Enhance Your Gains
One of the benefits of using leverage is that it can enhance your gains. For example, if you only needed to post $110 to purchase 100 shares of Ford, and the price moves up 9% from $11 to $12, you would generate $100 in profits. The returns would be handsome as you only posted $110, allowing you to make nearly 100% from a 9% move in the stock price. What you need to be aware of is that leverage cuts both ways. If the stock price fell 9%, you would likely lose 100% of our equity in the CFD.
What Kind of Trading Strategies Can You Use with CFDs
One of the benefits of CFDs is that not only can you buy one to bet on a higher stock price, but you can also, if you choose, sell short the CFD and bet the price will decline. You can also trade a pair of assets, purchasing one CFD and simultaneously selling short another CFD. This market-neutral or pair-trading strategy is where you are looking for relative outperformance. For example, say you bought Apple shares and sold Meta shares. The trade you are placing assumes that Apple will outperform Meta. You don't care in this trade if the stocks move up or down as long as when they move, Apple exceeds Meta.
The Bottom Line
The Upshot is that there seems to be an acceleration in the EV industry in India. There is strong demand, and the government is subsidizing the OEMs to generate more cars, two-wheeled vehicles, and buses. India is expected to become wholly electrified in terms of cars by 2030. The move to electrification does not only include generating vehicles but also manufacturing cars and putting in charging stations across the country.
The opportunities in the Indian EV market can also lead to investment strategies in the contracts for differences market. CFDs allow investors to use leverage through a margin account to take a position in underlying assets such as stock, indices, and commodities. The benefits of using CFDs are the robust returns that can be generated and the ability to purchase and short-sell several different assets.
