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Mumbai: Emkay Investment Managers Ltd. (EIML), the asset management armof Emkay Global Financial Services Ltd. has announced the launch of Emkay Emerging Stars Series V. The fund will open for investment from September 9, 2022. The latest series of EIML’s AIF will invest in quality names within the manufacturing sector. The fund will aim to invest in four key themes of the manufacturing sector - Beneficiaries of domestic consumption, beneficiaries of export opportunities, the enablers of import indigenization, and the enablers of manufacturing growth.

Continuing on the lines of the previous series of funds, Emkay Emerging Stars Fund – Series V’s primary investment objective is to generate long-term capital appreciation for investors from a portfolio of equity & equity-related securities. EIMLhad raised a total of Rs 451 crore via its four series of AIFs.

The first three series of the AIF garnered benchmark beating returns for their valued investors. EIML is in the process of distributing proceeds to its investors, and has till date distributed Rs. 236 crore cumulatively, i.e. 35% of the outstanding units, which translates to more than 50% of the invested capital.

The research team at EIMLbelieves that the manufacturing sector has the potential to repeat what the Indian IT sector did from the 90s to the 2000s where the IT sector’s weight in indices was in single digit in the 90s to over double digit by the decade of 2000. The result was due to the exceptional work done by the Indian IT companies in bagging IT contracts from the US and Europe, by 2010, they counted most Fortune 500 companies as their client. Similarly, the BFSI sector’s weight in the indices was 12% in FY00 which rose to almost 35%+ pre-GFC. This was a result of the significant provisioning and capital raised by the PSBs and the private companies. The massive rise in demand for retail and corporate loans for capex also helped the rise of the BFSI.

The team believes in the potential of Indian manufacturing. The sector is fast shedding the flab of high cost, debt, and the productivity of the sector is on the rise. Between the years 2014-20, the cash ROCE of the sector was declining. Over FY20-22, the cash ROCEs have expanded driven by

* Rising CU at 76% for Q4F22, one of the highest in the last 7 years

* Lower effective tax rates driven by a cut in tax rates

* Better working capital management is driven by liquidity

The manufacturers are using robust ROCEs and consequent cash flows to

* Reduce debt – D/E of BSE500 ex BFSI down to 0.6x vs 0.9x between FY15-22

* Expand capacities – rising request for environment clearances.

The robust returns coupled with thecapacity utilization will lead to the manufacturing sector putting new capacities. This is also evident in the form of manufacturing companies’ registration which is the highest ever in the last 7 years

The investment team is confident of high returns from the manufacturing sector due to four factors,

* Lower tax rates – maximum marginal tax rate of 25% and 15% rate if it is new capex

* Lower effective cost of debt with MCLR at 8.45% vs 9% pre-covid

* Higher commitment towards capex until F26 and

* The icing on the cake – PLI scheme

Emkay Investment Managers Ltd.believes that the balance of scale has only tilted in favour of services over last 20 years, whether in indices or in GDP. Now that the holy trinity highlighted above is in favour of manufacturing, the tilt should scale back in favour of manufacturing over the next 10 years.

Commenting on the development, Mr. Sachin Shah, Fund Manager, Emkay Investment Managers Ltd.said, ‘As we have witnessed in the past that the winners rotate with every rally, we expect the manufacturing sector to take the lead this time. With the government’s focus and favourable policies and the sector’s financials and operational matrix well placed,manufacturing shouldtake the lead in this decade. We expect manufacturing to do the heavy lifting in terms of returns garnered for investors in the years to come.’

Mr. Krishna Kumar Karwa, MD, Emkay Global Financial Services Ltd. and Mentor-EIML said, ‘At EIML our aim is to offer differentiated service, with industry-beating returns for our investors. Emkay Emerging Stars Series V AIF is a step in that direction. We are confident of the manufacturing sector performing well, in line with the government of India’s efforts in that direction.’

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