India's manufacturing story is no longer about a uniform upcycle. Instead, it is unfolding as a multi-speed journey, with certain segments accelerating sharply while others move through a softer, cyclical phase.
This divergence reflects deep structural shifts in global supply chains, domestic demand strength and the preparedness of Indian companies to capture emerging opportunities, according to Manoj Bahety, fund manager at Carnelian Asset Management & Advisors.
On the leadership side, three manufacturing segments stand out.
Contract Development and Manufacturing Organisations
Long dominated by China, this segment is now seeing a meaningful reallocation of global orders as multinational companies diversify their supply chains under the China-plus-one strategy. India, with its engineering talent, cost efficiency and improving regulatory credibility, is emerging as a natural alternative.
Bahety says this is not a short-lived trend. "The diversification underway is structural, giving Indian CDMOs multi-year visibility for capacity expansion."
Capital Goods
Companies with strong execution capabilities and established market positions are benefiting from a rare alignment of domestic and global tailwinds. Internationally, supply-chain diversification is translating into incremental export orders. Domestically, India's capex cycle driven by infrastructure, power, railways and industrial investment is providing sustained demand. Together, these forces are supporting robust order books and earnings visibility for leading players.
Auto Ancillaries
A relatively healthy domestic auto cycle, combined with steady export growth, has allowed several Indian component manufacturers to scale faster than in previous cycles. Many firms have aligned themselves with evolving technologies and global original equipment manufacturers platforms, helping them move up the value chain and strengthen competitiveness.
Chemicals
Bahety attributes this primarily to weak global end-consumer demand rather than any structural weakness within India. The sector is heavily export-oriented, and global softness has weighed on volumes and pricing. However, he believes the slowdown is cyclical. "India's leadership in complex chemistry remains intact. As global demand normalises, the segment should recover," he says.
The divergence across manufacturing, Bahety explains, is being driven by three key factors: where global supply chains are reallocating, how strong domestic demand is in each segment, and how effectively companies are positioned to capture both trends. While policy support, such as the Production-Linked Incentive scheme, has helped, the biggest gains are accruing to sectors where India already has scale and a proven ecosystem.
Over the next three to five years, the beneficiaries of China-plus-one and supply-chain realignment are likely to be manufacturers operating in areas where India is already relevant and competitive. These are not greenfield stories but expansions within established markets. "For such companies, global supply-chain shifts act as an accelerant, not a starting point," Bahety notes.
In a multi-speed environment, distinguishing between cyclical recoveries and genuine long-term opportunities becomes critical. At Carnelian, this is done through a disciplined investment framework. The first filter is quality assessing the strength of the business and the depth of management to navigate both upcycles and downturns. The second is growth, where the firm differentiates between high acceleration "magic" companies and steady "compounding" businesses.
A key pillar of the process is forensic analysis through Carnelian's CLEAR framework cash flows, liabilities, earnings quality, asset quality and governance checks. This ensures growth is backed by financial integrity. Valuation discipline remains the final guardrail, even for high-quality companies with strong structural tailwinds.
Valuations, however, have already rerated sharply in parts of manufacturing. Bahety acknowledges that while some premium is justified where growth visibility and competitive advantages are clear, markets can get ahead of fundamentals. "Optimism needs to be balanced with a clear growth valuation lens," he says.
Within manufacturing, capital goods and specialty engineering continue to look attractive, particularly in precision engineering and industrial equipment where entry barriers are high. Electronics manufacturing services and select import-substitution themes are also gaining traction as domestic capabilities reach global standards. Chemicals, despite near-term weakness, still offer compelling niches for companies with differentiated products and strong client relationships.
The most underappreciated opportunity, Bahety believes, lies in niche manufacturers supplying mission-critical components to global OEMs. Often operating below the radar, these companies combine durability with scalability, making them potential long-term compounders.
Risks, however, remain. Global demand volatility, margin pressures and aggressive capex decisions can strain balance sheets. For investors, the message is clear: focus on quality, capital discipline and flexibility. In India's evolving manufacturing landscape, selectivity will matter far more than broad-based exposure.
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