The focus of analysts and investors is now shifting clearly towards domestic manufacturing sector. And rightly so, as they expect India to dominate global manufacturing in the next few years.

The Production Linked Incentives (PLI) scheme has been the bedrock of the government’s plan to promote domestic manufacturing post Covid, said SBI Funds Management. The scheme is currently operational across 14 sectors targeting ₹5-lakh crore of manufacturing capacity addition and 3.6 million employment generation. The government is willing to spend ₹2.8-lakh crore spread over the next seven years in the form of financial capital support, SBI Fund Management added.

“Three years since the commencement of the PLI scheme, we find it is broadly on track. So far, out of the envisaged capex of ₹5-lakh crore, the government has received investment commitments for ₹3-lakh crore (SBIFM calculation) by 733 applicants. About ₹62,500 crore of capex has been spent till FY23 ii (i.e., 21 per cent of committed capex and 12 per cent of planned capex). Most of the capex activity under the PLI scheme is bunched during FY24-26 as the final contours of some of the larger schemes (solar, steel) have just been finalised in recent months,” it added.

Robust investment activity

According to ICRA, India’s investment activity was robust in Q1 of FY24, with a majority of investment-related indicators witnessing an improvement in their year-on-year (YoY) growth vis-à-vis Q4 of FY23, and most of the other indicators continuing to see a double-digit expansion, despite a deceleration.

“Further, project completions surged to record levels in Q1 of FY24, led by public sector housing projects, although private sector new project announcements (excluding a large aircraft order) slumped to the lowest levels since Q1 of FY21,” ICRA said in a recent research report.

Global investment advisory Bernstein said that India has seen tremendous progress in several areas, including digitisation, formalisation of the economy, a better policy environment to attract investments for manufacturing initiatives and a step-up in infra spending.

The building blocks are in place, and although economic growth has been sluggish for several years in the past decade — part of that was unwinding the excesses and strengthening the economy through new reform initiatives, the global major added.

“The building blocks are clearly in place for a positive India cycle as long as the continuity of policies remains. We remain positive on the broader markets, even as we see room for some moderation in H2-FY24 macro, as we believe that the cycle view will continue to limit downside risks,” it added.

Recently, Emkay Investment Managers Ltd (EIML), the portfolio management services arm of Emkay Global Financial Services, said it sees a lot of promise in the Indian manufacturing opportunity. The sector (companies in the listed space) was among the worst performing in terms of returns posted for the investors during FY15-19 — they were in low single digits. “Due to the structural changes, the sector received the right push. Due to this, the sector’s performance has been better than its peers namely Nifty 500, Nifty Bank, Nifty 50, Nifty Services, and Nifty IT. The growth delivered from March 21 has been in higher double digits,” EIML said.

As the government aims to make India the third largest economy globally, the timely execution of the projects assumes crucial significance. For that, both the Centre and State governments should join hands. Besides, the private sector should also display its animal spirits by executing large capex plans.

As the current Government aims to be among global top 3 in GDP, the timely execution of the projects is the key. For that, both the Centre and State governments should join hands. Besides, the private sector should also display its animal spirits by executing large capex plans.

If everything falls in line, no doubt, as Emkay Global predicts, BSE Manufacturing Index is poised for higher growth in the next few years.

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