Ways To Invest In India's Manufacturing Growth Story

Manufacturing is the sector where innovation meets industry to drive economic growth and shape the future of global commerce. The sector stands at the forefront of India's economic growth, contributing approximately 17 per cent to the country's gross domestic product (GDP) -- a number that the government is pushing to increase to 25 per cent by 2025 through proactive policy measures. With the government's unwavering commitment to initiatives like 'Make in India', the manufacturing sector is poised for significant expansion, presenting a compelling investment opportunity. These initiatives by the government are drawing investor attention towards mutual fund schemes focused on manufacturing as a theme.

What is a manufacturing-based mutual fund scheme? 

Manufacturing-themed mutual fund schemes invest predominately in equity stocks of companies that are engaged in manufacturing in India. Such funds are designed to harness the potential of the manufacturing sector by investing in companies poised to benefit from India's manufacturing growth story. This is one theme where the mid and small-cap manufacturing companies to play a significant role. 

Why consider a manufacturing theme? 

Exposure to Promising Growth Trajectory: Such type of fund taps into India's promising growth trajectory in the manufacturing sector, aligning with the government's vision to boost domestic production and exports.

Diversification Across Sectors: Unlike sectoral funds that concentrate on specific industries, manufacturing-based mutual funds offer diversification across multiple sectors united by the common theme of manufacturing. This diversification helps mitigate sector-specific risks.

Alignment with Government Initiatives: With initiatives like the Production Linked Incentive (PLI) scheme, infrastructure development, and reforms in land and labor policies, the government's focus on promoting manufacturing creates a favorable environment for investments in this theme.

Potential for Long-term Growth: Manufacturing contributes to job creation and innovation, making it a crucial driver of economic growth. Investing in manufacturing-based mutual funds allows investors to participate in India's long-term growth story.

Global Trends Favoring Manufacturing: Global trends such as decarbonization efforts, supply chain diversification away from China, and urbanization create additional tailwinds for the manufacturing sector, further supporting the growth potential of manufacturing-based mutual funds.

In effect, manufacturing stands as a crucial foundation for India's economic growth, driven by robust performance of vital sectors such as automotive, engineering, chemicals, pharmaceuticals, and consumer durables.

While there is a huge potential of the manufacturing sector, investors should be mindful of the risks involved in the theme as well. Hence, they should avoid putting all their funds into a single scheme based on this theme. Diversification is crucial to mitigate risks effectively.

Who should invest?  

This type of fund is best suited for experienced investors who are willing to make selective investments for potentially higher returns. They should have a long term approach to investing (more than five years) in such themes such that there is time for the calls to play out over the coming years. Given the thematic nature of the offering, investors can expect sharp swings from time-to-time.

To take exposure to the manufacturing theme, a lay investor given the time and research constraints, may consider opting for manufacturing-based thematic mutual funds offering. When choosing a specific theme based fund, it is important to assess factors like the fund house's past performance in managing thematic equity schemes, the level of diversification among stocks within that specific theme or sector the portfolio maintains, etc. It is ideal to seek guidance from a financial advisor to ascertain the fund suitability and its role in meeting your financial objectives. 

In conclusion, manufacturing-based mutual funds offer investors an opportunity to capitalize on India's manufacturing growth story, backed by government initiatives. By investing in these funds, investors can align their portfolios with the transformative changes underway in India's economy and potentially benefit from the long-term growth prospects of the manufacturing sector.

Dhiraj Kumar Jaiswal, Mutual Fund Distributor