Investments in India's manufacturing sector are set to witness greater interest through the decade, as export-oriented policies and FDI inflows coupled with an infrastructure push makes it an attractive bet.
"The theme should be looked at for a large-cap oriented portfolio, but of a nature that is complementary," according to Shreyash Devalkar, head of equities at Axis Mutual Fund and manager of the Axis India Manufacturing Fund.
"Representation of non-consumption sectors is less in large and flexi-cap portfolio," he said, highlighting that the Nifty 50 has a greater composition of consumption sector stocks. "That's why this (fund) is complementary to a large-cap oriented theme."
Shreyash Devalkar, Head of Equities at Axis Mutual Fund. (Source: Company website)
Manufacturing consists of various sub-segments, including chemicals, oil and gas, textiles, capital goods, and automobiles. The share of manufacturing in India's GDP is expected to grow faster this decade, providing an opportunity to tap value, he said.
Devalkar, who previously managed Axis' bluechip and small-cap funds, also noted healthy earnings growth of manufacturing companies. "The PAT growth of this segment is better than consumption in the last two to three years."
Original equipment manufacturers will have winners and so will auto ancillaries, which are tied to export growth, according to him.
Capital goods are expected to be impacted by the rural-urban demand scale, Devalkar said.
The electronic manufacturing service space has drawn attention due to key government incentives, but it requires manpower and technological experience given the high rate of rejection, he said.
Companies that climb up the learning curve faster and manage to scale up capacity will do well, Devalkar said.
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