Investing in India’s manufacturing sector: Opportunities and outlook

India's economic landscape is a tapestry of growth drivers, with the manufacturing sector emerging as a pivotal force propelling the nation forward. Quite simply, manufacturing can very well be considered among the next themes for the decade, potentially transforming India’s economy.

Driving forces: Economic engine & contribution

The growth narrative of any nation is closely linked to the performance of its key sectors. In India, while agriculture and services have traditionally played significant roles, manufacturing is now set to lead the next phase of economic growth.

Currently, services dominate with 56% of Gross Value Added (GVA), while manufacturing contributes 27%. Despite not yet reaching its full potential, the manufacturing sector holds immense promise as a leading force in India's economic journey.

India's growth trajectory has been significantly shaped by agriculture and services. However, manufacturing, with its vast potential for expansion, remains a key player yet to fully realise its capacity. As the sector grows, it is expected to play a crucial role in driving the country's economic progress.

Key pillars of manufacturing growth

1. Infrastructure and Technology Investments

Investments in manufacturing infrastructure and technology are critical for driving sustainable economic growth. These investments facilitate import substitution, boost exports, create jobs, foster innovation, and enhance productivity.

Strengthening local manufacturing reduces dependency on imports, fostering self-reliance and mitigating external vulnerabilities. Also, a robust manufacturing sector not only serves domestic demands but also fuels export-oriented growth, bolstering India's position in the global market.

2. Job creation

Manufacturing's labour-intensive nature translates into significant job opportunities, contributing to socio-economic development and livelihood enhancement. Developed countries over the years which have grown on the back of manufacturing have shown that large-scale manufacturing fosters innovation, driving improvements in product quality, efficiency, and competitiveness on the global stage.

3. Government initiatives, emerging trends

The government's steadfast focus on promoting manufacturing is evident through initiatives like "Make in India" and "Vocal for Local." Additionally, Production Linked Incentive (PLI) schemes incentivize key sectors, propelling production and exports.

Growing environmental awareness worldwide is driving a shift towards eco-friendly industrial practices, presenting India's manufacturing sector with new opportunities. Another factor supporting domestic manufacturing is India's urbanisation. This necessitates significant investments in affordable housing and urban infrastructure, creating avenues for manufacturing-led growth.

Investment opportunities in manufacturing

Investment opportunities within the manufacturing sector are abundant, with various avenues for potential growth and profitability. From traditional manufacturing industries like textiles and automobiles to emerging sectors such as renewable energy and advanced manufacturing technologies, there is a diverse range of opportunities for investors to explore within the manufacturing theme.

Investors who have already invested in this theme have witnessed substantial wealth creation in recent years. For example, the Nifty India Manufacturing Index (price return variant), which tracks the performance of stocks that represent manufacturing sectors in India, increased by 55% in one year and delivered 21% (CAGR) over 5 years as of April 30, 2024.

Outlook

As India charts its course towards economic resurgence, the manufacturing sector emerges as a beacon of hope, driving inclusive growth, fostering innovation, and propelling the nation towards a brighter tomorrow.

With the right policies, investments, and strategic interventions, manufacturing can unleash its full potential, contributing significantly to India's journey towards becoming a global economic powerhouse. This theme has the potential to be a wealth creator for the next decade and beyond.

Disclaimer: The article is authored by RC Rawal, MD, Imperial International. The opinions expressed are those of the author and do not necessarily reflect the views of Business Insider India. Do your own research (DYOR) before deciding to invest in any financial asset class. This article is published by the Insider Studios team. You can get in touch with them on insiderstudios@businessinsider.in.