India is presently undergoing a modern Manufacturing Renaissance. The nation is wholeheartedly dedicated to bolstering its manufacturing sector as a fundamental aspect of its comprehensive economic growth strategies.
In conjunction with corporate undertakings, the government has introduced numerous campaigns and initiatives to revitalise and advocate for manufacturing throughout the country. In this context, specialised mutual funds concentrating on manufacturing in India present a promising route to tap into this theme.
Considering that manufacturing contributes more than 15% of India's GDP, exploring investment opportunities in this sphere through specialised funds is pertinent. Here are some vital considerations to remember before immersing oneself in this theme.
Understanding the Theme
Multiple manufacturing sectors in India are export-driven, boosting the nation's foreign exchange earnings. Prominent contributors to India's export revenues encompass sectors such as pharmaceuticals, textiles, and automotive components. The manufacturing sector in India possesses significant growth potential, attributed to factors such as a vast and youthful population, a growing middle class, urbanisation, and a favourable business environment.
Despite its potential, the manufacturing sector in India grapples with challenges like infrastructure limitations, intricate regulatory frameworks, access to credit, and shortages of skilled labour. Both the domestic manufacturing sector and the government are actively addressing these challenges to unlock the sector's complete potential.
Initiatives
Various measures have been implemented to rejuvenate India's manufacturing sector. Commenced in 2014, the 'Make in India' campaign strives to transform India into a global manufacturing hub by encouraging domestic and international companies to produce their goods within the nation.
The National Manufacturing Policy (NMP) aims to enhance the manufacturing sector's contribution to the Indian economy, generate employment opportunities, and promote sustainable growth. Introduced in 2020 in response to the COVID-19 pandemic, the Atma Nirbhar Bharat initiative seeks to reduce India's reliance on imports and promote domestic manufacturing and production of goods.
The government introduced the PLI scheme to provide financial incentives to manufacturers across various sectors. Government PLI schemes, encompassing thirteen sectors, have the potential to attract investments totaling Rs 5 lakh crore over the scheme's lifespan, spanning at least five years. Diligent efforts have been made to enhance the skill set of the Indian workforce, particularly in high-tech and advanced industries, to meet the needs of the manufacturing sector.
Manufacturing Funds
Thematic mutual funds with a manufacturing focus mainly invest in companies engaged in producing goods and products across diverse industries, including automobiles, chemicals, engineering, textiles, consumer durables, and more. The performance of these funds is closely tied to the manufacturing sector's performance and is positively influenced by the factors driving the industry. Thematic manufacturing funds offer the potential for increased returns during optimistic market phases. They are especially suitable for investors with a higher risk tolerance and a strong belief in the growth prospects of the Indian manufacturing sector.
Performance
Stocks associated with manufacturing have displayed commendable performance. Over the one-year period ending in September 2023, the Nifty India Manufacturing Index recorded gains of 20.94%, surpassing the broader market. Over a more extended duration, such as five years, the assortment of manufacturing stocks has delivered a Compound Annual Growth Rate (CAGR) of 14.95%.
Efficient manufacturing funds aim to diversify across various manufacturing sectors. They remain adaptable concerning market capitalization and sectors, retaining the capacity to invest across market segments. Additionally, these funds might adopt assertive sectoral stances based on sub-themes such as export-oriented manufacturing, domestic consumption, and domestic capital expenditure-focused manufacturing.
Typical sectoral allocations encompass domains like Automobile and Auto Components, Capital Goods, Healthcare, Metals & Mining, Chemicals, Oil, Gas & Consumable Fuels, Consumer Durables, and Textiles.
In Conclusion
The manufacturing sector has the potential to emerge as India's next growth driver, bolstered by robust governmental initiatives such as the PLI and Make in India. This fosters a strong revenue and demand landscape for burgeoning segments like Electric Vehicles, Electronics, Battery Technology, Defense, and more. Beyond its primary objective, investors in well-managed manufacturing funds can expect diversification compared to funds that are skewed towards the services and consumption sectors.
