Comments
After being in the slow lane for the better part of the previous decade, manufacturing as a theme has been at the forefront of driving economic growth in the post-COVID era.
Given that the manufacturing theme encompasses several sectors such as apparel, capital goods, automotives, electrical devices, smart phones, chemicals, pharma, industrials, construction materials, metals & mining, consumer durables and so on, the ambit is wide. Defence is another huge area of local and global push.
A combination of demographics leading to strong local consumption, apart from factors such as export demand, global companies looking to de-risk their supply chain from China dependence and government push to provide incentives have brought back the vigour of the theme.
With many fund houses rolling out new schemes with manufacturing as the underlying theme in recent times, HDFC, too, has jumped into the fray.
The HDFC Manufacturing fund will be open for subscription until May 10. Read on to take an informed call on whether manufacturing makes sense as a theme currently and whether the NFO is a suitable way to play it.
A theme on the ascent
The share of manufacturing in India’s gross value added (GVA) is all set to grow from 15 per cent currently to 20 per cent by 2030. In actual dollar terms, manufacturing GVA is set to rise 2.8 times from $453 billion in FY23 to $1.28 trillion by FY30.
India has strong consumption going for it. Consumption as a percentage of GDP is over 63 per cent, which compares favourably with many emerging and advanced economies and is among the top 3-5 markets for products from around the world. In smartphones alone, India’s share in world (ex-China) volumes (number of units) has tripled from 4 per cent in CY13 to 12 per cent in CY23, which opens considerable opportunities for local manufacturing as well.
Merchandise exports are set to grow at a compounded annual rate of 11 per cent over the next several years and India’s share is set to almost double from 1.8 per cent to 3.5 per cent by 2031. In fact, merchandise exports are expected to grow faster than services for the foreseeable future.
India would add 152 million people – the highest number in the world by a long margin – in the 30-60 working age group, thus indicating a robust labour market. The country is also among the lowest-cost producers of many goods globally.
Chemicals, electrical & electronics and textile & apparel are sectors set to export over $ 100 billion each by FY28.
India’s defence production is set to quadruple from $11 billion in FY20 to $43 billion by FY30, with a strong export component as well.
Ports’ capacity increased 1.76 times between 2014 and 2023. Railway electrification has risen 2.5 times in the last ten years, while the highway network has doubled over the same period.
The government’s push via production-linked incentives (PLI) and a corporate tax rate of 15 per cent have been useful in driving the manufacturing theme across sectors.
Manufacturing FDI has risen steadily and stood at $15.3 billion in FY23 (3-year rolling average).
These data points have been taken from Jefferies, UBS, Morgan Stanley, Bain, IBEF, BoFA Research and PIB.
Investing in manufacturing
The above trends clearly shows that there is merit in investing in the manufacturing theme. There are as many as 691 manufacturing companies with a market capitalisation of more than ₹1000 crore. A majority of them are small caps, though there are many prominent large and midcaps as well.
Data as of March 2024 indicate that on a trailing basis, Nifty India Manufacturing has outperformed the Nifty 500 and Nifty 50 across timeframes.
There are six actively managed funds exclusively focused on manufacturing as a theme. ICICI Prudential Manufacturing and Aditya Birla Sun Life Manufacturing Equity are two funds that have been in existence for more than five years.
The ICICI Prudential Manufacturing fund has outperformed Nifty India Manufacturing by a wide margin, has a robust long-term track record, and can be considered by investors.
HDFC Manufacturing fund will be actively managed. The fund house has a strong record of delivering steady, above-average returns in its equity funds. ‘
As few funds track the theme, investors with a high-risk appetite can consider investing in the HDFC Manufacturing fund in small lump sums or through a SIP.
Given that manufacturing is cyclical and dependent on multiple business, economic, and governmental factors, investors must allocate only a small portion of their satellite portfolio as a diversifier.
Comments
COMMENT NOW
