Is It Time To Capitalise On India’s Manufacturing Thrust?
At present, India’s fast burgeoning manufacturing sector makes up 17.7% of the country’s GDP and this figure is expected to rise to a quarter of India’s GDP, by 2025, bolstered by the strong push from a government keen on ‘Make in India, Make for World’ and AatmaNirbhar Bharat initiatives. As an emerging market, India’s Agriculture and Services sector has witnessed robust growth over the last few years, when compared with its peers, but the Manufacturing vertical still depicts ample space for further expansion. Accordingly, as India makes strong strides into its Amrit Kaal, and advances towards becoming the third largest economy in the world, in terms of GDP, by 2027, investors are increasingly turning their focus towards the potential inherent in the manufacturing narrative.
Manufacturing – crucial to India’s growth
As India strives to maintain its robust growth figures in the decade ahead, and achieve its ambitious targets on a global scale, the manufacturing sector emerges as a crucial conduit for the country’s growth story. Considering the recent instance of global geopolitical crisis, Indian investors were spooked regarding the possible repercussions on the domestic economy, given that Israel is one of India’s largest export partners. Once India’s manufacturing sector gains enough capacity to facilitate optimal import substitution and export growth, such fears will evaporate and India will become a more self-reliant economy. The sustained growth in exports will also help lower the domestic Current Account Deficit figures and boost net exports from its current -3.7% of GDP to a more balanced statistic.
Further, the manufacturing sector is poised to become a primary driver of growth, leveraging India's strengths, such as a skilled labour force, enhanced physical infrastructure, a well-established industrial ecosystem, and a vast domestic market. Accordingly, the sector is poised to boost innovation, facilitate job creation, encourage the domestic services sector and enhance productivity across the ecosystem.
High conviction sectors to consider
In addition to essaying the role of an overall booster for India’s GDP growth, the manufacturing sector is also enabled by a variety of high conviction sectors capable of enabling structural manufacturing growth. From the fast growing auto and auto ancillary sectors, to globally relevant verticals such as chemicals, pharmaceuticals, infrastructure and defence, the India growth story is being propelled by a combination of sectors that instil strong confidence in investors. These high conviction sectors have been chosen on the basis of thorough research, analysis, and a deep understanding of the sectors’ fundamentals and growth prospects.
How should you invest?
If you are convinced of the immense potential inherent in the manufacturing sector, this may be the right time to capitalise on your convictions. While you can build your portfolio by selecting individual manufacturing stocks catering to these high conviction trends, another convenient and effective way to invest is through mutual funds adhering to the manufacturing theme. Such an investment will also ensure risk diversification in your portfolio, in a concerted attempt to guard against trend reversals.
Accordingly, when you invest in manufacturing-themed mutual funds, you will park your corpus in schemes which do not depict over concentration in any particular sector.
Further, the schemes, navigated by experienced and skilled fund managers, will avoid buying into overvalued sectors and indicate a large cap tilt, which plays an imperative role in protecting your portfolio against market shocks. This is because large cap stocks are fundamentally strong and have proven their inherent value over decades, ensuring comparatively stable returns even in volatile markets.
Finally, these schemes leverage a bottom-up approach to investing, to ensure a better risk-reward equation. Such an approach involves consistent fundamental analysis centred on the assessment of an individual company's performance and prospects, rather than taking a look at the sector at large. Manufacturing-themed mutual funds will also delve into a company's financial statements to scrutinise historical data like revenue, net income, assets, and liabilities, with the aim of ascertaining whether future sales and profits are likely to see growth, ensuring a calculated decision.
Now that you know the most effective and convenient means to invest in the fast-growing manufacturing sector, this is your time to make a move.
About Author
Bhushan Wani, CFP, Director, Crescent Mutual Fund Distributor Pvt Ltd
