Why investors are looking at manufacturing stocks

Dec 29, 2022

Can India become a global manufacturing hub? And if yes, where must one invest? Various money managers and economists share their views. Each name is linked to their detailed views.

Pankaj Tibrewal, Money Manager
He shares his views in: Checklist for investing in small-cap companies

India is going through a massive, massive change at the ground level, and it is in manufacturing. Entrepreneurs across different sectors are talking about import substitution.

Euro Plus is playing out beautifully.

In Morbi, Gujarat, there are 750 units of tile manufacturing, operated by Gujarati promoters. Three years ago, their total exports were Rs 5,000 crores. In our estimates, this year they will cross Rs 18,000 crores. Their tag line: Cheaper than China, better than Italy. Cheaper than China in terms of costs, better than Italy in terms of quality.

Sri City is a 10,000-acre industrial cluster developing at Andhra. I think the next big electronic hub of Asia will be at Sri City. India will produce 75 cr handsets over the next five years. The kind of ecosystem getting developed in electronics is something to believe at the ground level.

India has grown in specialty chemicals, pharma, capital goods, auto ancillary, light precision, high precision... No other country except China can produce that skilled labour talent.

Prashant Jain, Money Manager
He shares his views in: 4 things a stock investor must be aware of

Our competitiveness versus China in manufacturing has improved. And for the first time in my career of three decades, Indian companies have not been complaining about their inability to compete with Chinese costs. During the pandemic and post the lockdown, supply chain issues were paramount due to excessive dependence on China. The world wants to eagerly de-risk and adopt a China Plus One strategy.

The energy crisis in Europe will make manufacturing quite even more challenging. Some manufacturing could move offshore, and I think India is extremely well-placed.

The Indian government is very supportive of encouraging manufacturing through various initiatives, and I think even geopolitically India is a favoured destination.

Samit Vartak, Money Manager
He shares his views in: My hits and misses

Everyone is positive on the manufacturing sector. But everything is manufactured. So what exactly do we mean when we say manufacturing? Where is the investment opportunity?

For example, in Europe, the price of gas has gone up. But are they going to transfer the business or are they going to come in here and manufacture here? If they come here, would we as investors make money?

I think the safest way to play the India growth story, or the manufacturing opportunity, is to focus on manufacturing infrastructure. Companies providing infrastructure to the manufacturing companies. Compressors, for instance. Compressors are used in any factory, in any infrastructure project. So, whether a European company comes in here and puts up a chemical plant or pharma plant or Taiwan Semiconductor comes in and puts up a factory in Sri City… compressors is one of the best ways.

A stock that I am bullish about is one that manufactures structural steel tubes. Whether you're building warehouses, ecommerce picks up, a textile plant, a metro, a bullet train - anything manufactured will need structural steel pipes. So, I think it's a much safer way of betting on that. You know the sector is going to do well. But you don’t know who the winner in that sector is - a foreign player or domestic player. But I do know that we are not going to import steel tubes.

Saugata Bhattacharya, Economist
He shares his views in: How do we increase Per Capita GDP?

I track Apple's plans in India very closely. They actually have plans to invest more than $50 billion over the next five years or so. And if they can get it right, that will be a very major value addition. Because if they can get the electronics ecosystem in place, other large electronics manufacturers will then begin to come in. Foxconn's plan in India is likely to add to the high end of the mass electronics markets.

Pranjul Bhandari, Economist
She shares her views in: A frank assessment of the Indian Economy

Now 90% of India's manufacturing units are either micro, small or medium-sized. They don't enjoy economies of scale. They can't be efficient producers, especially when we have so many efficient producers around the world. This is the big problem we have to solve.

This is constantly on my radar when I track the economy. Are we giving an ecosystem to manufacturing where small firms grow overtime? Or are we creating a situation in which they remain dwarfs for long?

While we have made progress, a lot many reforms must come into being. Factor market reforms on land, skilled labour, regulatory reform, bringing down the regulatory burden small firms face, increasing hard and soft infrastructure. They are tough and they won't happen easily, but we must persevere.

On the eve of the pandemic, India's potential growth was about 6%. New India is all the promising things like high-tech exports and start-ups. If we continue to grow, our potential growth could go back to somewhere between 6% and 6.5%. That growth is good, but it doesn't create jobs.

We need old India – manufacturing, the creaking infrastructure, and all of that - to rise as well. This will create employment. If we can do that, along with digitisation of manufacturing processes and reforms, the impact will be powerful. We can go up to a 7% economy.

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All the above views were shared during the Morningstar Investment Conference India, September 2022. None of the stocks mentioned are recommendations to buy or sell.
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