Emkay Investment Managers, the portfolio management services arm of Emkay Global Financial Services, sees promise in the Indian manufacturing opportunity. The sector is poised to grow at a brisk pace supported by favourable government policies, key beneficiaries of China+1, and the improving matrix within the players.
The listed firms in the sector posted low single-digit returns from FY15-19. The returns since March 2021 have been in higher double-digits, with the BSE Manufacturing index outperforming indices such as Nifty 500, Nifty Bank, Nifty 50, Nifty Services, and Nifty IT.
The top constituents of BSE Manufacturing Index are ITC, Reliance Industries, L&T, ONGC, Hindustan Unilever, Coal India, BPCL, Asian Paints, M&M and Maruti Suzuki.
Government capex
Krishna Kumar Karwa, MD, Emkay Global Financial Services, said, “India’s manufacturing sector is an idea whose time has come. The government’s thrust on Make in India, PLI scheme-like policies will continue to provide the required push for growth. We expect the sector to witness traction domestically due to the structural issues that were addressed. We also expect the sector to witness fund flows from overseas as the China+1 strategy takes on in full flow.”
The current government capex is seen at 2x of historical averages. Both Central and State capex are significantly higher than the historical averages. As per the available data, the Central and State capex is around 5.6 per cent of GD,P which was 2.8 per cent of GDP pre-Covid 20-year average. The government capex is largely driven by building roads and railways infrastructure across the country. During the previous upcycle of 2003-08, the government capex grew by 23 per cent CAGR.
The sector faces risks in the form of hike in interest rates, liquidity, and a slowdown in the broader economy, said the report.