India is fast tracking its journey towards becoming a manufacturing hub of the world. With the Government of India’s initiatives by way of incentives and policy decisions to offer a boost to the already gaining momentum in this segment, manufacturing is attracting the interest of investors.
Why should you invest in the Manufacturing sector?
Since the 18th and 19th century industrialization age, manufacturing has played a big role in the progress and development of nations. Manufacturing is a labor-intensive industry and creates employment opportunities leading to economic progress and reducing income inequalities. China’s high economic growth over the last 40 years was driven mainly by manufacturing. Though India has also experienced high GDP growth since liberalization of our economy in 1991, the contribution of the service sector leads manufacturing in terms of employment (31% of India’s workforce versus 25%) and GDP growth. From 1991 to 2022 our manufacturing output grew from Rs 3.5 Trillion to Rs 26 Trillion (nearly 8X growth). Manufacturing sector will play a key role in the next stage of India’s economic growth by addressing our external sector imbalance and demographic e.g. employment, rising working age population etc.
Currently, there is a favorable confluence of factors affecting the manufacturing sector in India. The country is steadily moving from a service led economy to a manufacturing driven economy. As per a Morgan Stanley report, India’s electronics manufacturing sector will be growing at a 21% CAGR over the next few years (FY 2024-2032) to US $ 604 bn and will be 8.6% of the GDP.
The low-cost labor supply coupled with a growing consumer market in India, increasing demand for Indian manufactured goods in the global market, and strong policy environment heralds a golden horizon for manufacturing in India. As per RBI’s forecast, India will be a $5 Trillion economy and third largest in the world by 2027. Accordingly, we are likely to see significant growth in India’s manufacturing industries over the next 5 – 6 years.
The propelling factors -
The following is a list of factors that is giving a boost to the manufacturing sector in India.
1. PM Gatishakti and ‘Make in India’ initiatives offered the foundation of the policy framework which had a target of boosting the manufacturing sector in India. Other key policy initiatives that aim at creating manufacturing capacities include export promotion, production-linked incentive (PLI) schemes, and liberal foreign direct investment (FDI) norms. The Atmanirbhar Bharat theme advocates import substitution.
2. In recent years the China-Plus-One model has gained traction, and many multinational companies are eyeing India as one of the go-to manufacturing destinations. We can witness the winds of change with Apple Inc. setting up their assembly unit in the country. We can expect a considerable amount of investment to flow into manufacturing owing to these changes.
3. The manufacturing sector in India is diversifying across various domains like specialty chemicals, auto components, garments, defense equipment, toys, footwear and capital goods amongst others. This kind of diversification in the industries indicates a huge potential for export-oriented growth and import substitution as well.
MF schemes that can help you align your portfolio with India's growth narrative -
Capitalizing on the trend, mutual fund houses are lining up thematic manufacturing funds. Investors can choose from the many funds in the category either in the passive route or the active funds route. Passive funds are those that track an industry benchmark that tracks the manufacturing industry and active funds are those that are actively managed by the fund manager. Manufacturing focused funds invest a minimum of 80% of their corpus in stocks of companies that are engaged in manufacturing.
The Nifty India Manufacturing Total Return Index is the benchmark for this category of mutual fund schemes.
You can check the list of open ended Equity: Thematic Funds here.
Conclusion
In keeping with the nature of all thematic funds these funds are cyclical in nature and hence are suitable for investors with a high-risk appetite and who can stay invested for 5-7 years period. Contact your Eastern Financiers mutual fund distributor to understand if Thematic Manufacturing fund is suitable for your investor profile.
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