Manufacturing stocks have outshone Nifty in the last year. These are the themes to watch out for

The current set up bodes well for the manufacturing sector to not only post double-digit returns but also outperform its broader benchmark peers for the next few years, according to Emkay Global Financial Services. With a return of 17 per cent, Nifty Manufacturing index has outpaced the benchmark NSE Nifty index (up 12 per cent) in the last one year. The financial services firm believes that the global move to diversify beyond China will continue to benefit the sector for years to come.

Emkay Global further highlighted that the current government capex is seen at two times the historical average. Both central and state capex are significantly higher than the historical averages. It further said that auto and ancillaries, textiles, chemicals and capital goods are key beneficiaries of China+1.

As per the available data, the central plus state capex is around 5.6 per cent of GDP 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,” Emkay Global Financial Services said.

In a webinar on August 9, Krishna Kumar Karwa, MD, Emkay Global Financial Services said, “India’s manufacturing sector is an idea whose time has come. The government’s thrust and 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.”

Sachin Shah, Fund Manager, Emkay Investment Managers said, most of the growth elements have fallen in place for the sector. Local manufacturing by domiciled companies and foreign companies looking at setting bases in India has accelerated growth. The big push is likely to come from the central and state governments in the form of infra projects of large scale.

The brokerage further advised investors to zero in on companies with a judicious mix of domestic and export sales. It also said that it is prudent to invest in companies with pricing power even if it’s delayed by a few months.

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