The intention of the government is to increase the production of manufactured goods in India, reduce dependence on imports and connect the Indian manufacturing sector to the global value chain.
The exposure of companies to the manufacturing sector increased.
India’s GDP of about $ 2.6 trillion (GDP) with one of the world’s largest economies. Despite this, the manufacturing sector in the country’s GDP (Manufacturing Output) has a share of just 17 percent and only 2 percent of the world’s manufacturing output. On the other hand, the neighboring country of China accounts for 10 percent of the global manufacturing output. It is clear that India is running far below its potential in the field of manufacturing. Increase in manufacturing is important for the economic development of India. jobs to youthJobs) by giving the manufacturing sector can take India rapidly towards middle income economy. By acquiring technical knowledge, this sector can increase exports by reducing dependence on imports. In this way our trade deficit can be reduced and India’s economy can be more integrated with the global value chain.
The government has identified this sector and has taken several initiatives, which include policy changes, tax benefits, production linked incentives, etc. By adopting such targeted methods, India can be made a major manufacturing hub and the share of manufacturing sector in GDP can be increased to about 20 percent in this decade.
Manufacturing sector recovering from the shock of the epidemic
Siddharth Srivastava, Head, ETF Products, Mirae Asset Investment Managers (India) Pvt Ltd said, “The manufacturing sector in India is already showing signs of recovery from the shock of the pandemic. For example, India is one of the few large economies where the manufacturing sector has grown in the five-year period just before the pandemic.
India’s Manufacturing Gross Value Added (GVA) has grown faster than China’s during this period. India’s manufacturing GVA grew by 7.1 per cent, while China’s manufacturing GVA grew by 5.9 per cent during the same period. Along with this, India’s share in the global trade of manufactured goods has also increased during this period.
The Government of India is also keen to step in with various initiatives in this area. The intention of the government is to increase the production of manufactured goods in India, reduce dependence on imports and connect the Indian manufacturing sector to the global value chain. For this perhaps more targeted action is needed.
Rs 2 lakh crore PLI scheme
Recently, the government has introduced a production-linked incentive scheme (PLI Scheme) for 13 sectors for close to Rs 2 lakh crore, which is probably the most focused exercise, so that the production of the manufacturing sector in India can be increased.
The biggest beneficiary sectors under PLI include electronic goods, automobile and vehicle parts, pharma, chemicals etc. The PLI scheme alone has the potential to incentivize companies to increase production of goods worth about Rs 30 trillion in the next 5 to 7 years. And thus it can become a significant contributor to GDP growth during this period.
Along with this, the government has also provided a favorable environment. For example, the corporate tax rates for new manufacturing units have been reduced to 15 per cent. This is lower than many competing countries and can be compared to China. With the support from the government under self-reliant India, sectors like defense and manufacturing in India will also be encouraged and this will encourage the option of imports.
Investors eye on manufacturing sector
At present, investors are keeping an eye on this sector due to the support from the government along with a favorable outlook for India’s manufacturing sector. The auto industry is now in the nascent stage of an emerging and rapidly growing replacement demand. This is being bolstered by the continuous boom in the rural economy and gradual improvement in funding. Due to the favorable policies of the government, the EV industry is at a new juncture and huge investments are being made to prepare the entire supply chain.
In the next 5 years incremental production of more than US$ 40 billion is expected in the pharma industry. The chemical sector could also benefit from the shift to alternative supply sources outside China and could take advantage of the USD 11 billion import substitution opportunity. It will encourage capex scheme along with PLI.
China’s commitment to decarbonization could keep China’s exports and supplies of metals and petrochemicals under control, which could support profits and prices outside China. Also, the metal companies have delivered the balance sheet at a stable level. With a strong balance sheet and a bullish cycle outlook, metal companies are planning to increase capital expenditure in the near future. Finally, the capital goods sector is back to pre-Covid volume levels. After a decade-long down cycle, deleveraging focus and shrinking capital, it is now heading towards a corporate boom in terms of private capital recovery.
Exposure of companies in the manufacturing sector
In this way, the manufacturing sector is now providing exposure to companies, in which all kinds of opportunities are available. This includes the expected recovery in autos to capacity addition of electric vehicles, opportunities in pharmaceutical and steel sectors to the potential of defense and electronics sectors. This round is full of potential. Favorable outlook in the manufacturing sector due to government initiatives, implied demand, investment plan and improved balance sheet, are prompting manufacturing companies to be a part of an investor portfolio.
Apart from the growth potential, any investment in the manufacturing sector will also help in diversification from the existing portfolio, as typically the investor portfolio or portfolio of mutual funds is dominated by companies in financial services, consumption and information technology.
Apart from this, investors can also consider investing in the manufacturing sector through active or passive funds. Investors can either build their satellite portfolio for the long term or invest as a strategic allocation depending on the opportunities in the market. As India seeks to develop its manufacturing sector for the next phase of its growth story, investors can analyze and take advantage of this sector for opportunities, depending on their investment objectives and risk appetite. will depend on