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Mumbai : Emkay Investment Managers Ltd. (EIML), the portfolio management services arm of Emkay Global Financial Services held a media webinar today ‘Media Convergence with EIML’ – a discussion on the latest investment strategies and how manufacturing companies are attracting fund flows.

PLI scheme has the potential to add nearly 4% of GDP

The government of India’s PLI scheme aims to provide nearly Rs 2.4 lakh crore worth of incentives over the next 5 years. With the lion’s share going to electronics, auto components, and pharma the incremental Capex is likely to go to the less capex-intensive sectors. According to EIML, PLI scheme has the potential to add nearly 4% of GDP p.a. in terms of incremental annual revenues. The Indian consumer was missing in action for almost 5 years due to multiple reasons like demonetization, GST, COVID, and lack of inflation. The growth in per capita GDP picked up in FY22 and per capita GDP was higher than in FY20 after a dip. The discretionary income of Indian consumers is likely to rise from FY23 to FY27.

Indian mfg cos on the front foot.

Manufacturing sector was negatively impacted due to various events like Demonetisation, GST, and COVID. The manufacturing companies reported dismal ROCEs till FY18. Since then the cash ROCEs have improved to almost 20%+ driven by tighter working capital cycles. The cash return on capital employed was the highest in FY22.  The current difference between cash ROCE and comparable investment is one of the highest. The attractiveness of cash returns coupled with robust capacity utilization (CU) has put manufacturers on the front foot.

Registration of mfg cos at a 7-year high

Manufacturing companies are adding capacities due to the robust returns. The registration of manufacturing companies has shot up to the highest ever in the last 7 years. The share of manufacturing companies in total registrations of companies is also at almost highest. The number of environmental clearances sought and granted was the highest ever i.e.– 10x of FY15.

Sense of Déjà vu

The structural changes in 2018-21 are reminiscent of a lot of things that happened prior to the boom cycle witnessed during 2003-06. The corporate tax rate, clean-up of balance sheets, and declining cost of borrowing indicate a cycle witnessed post-2002.

The China + 1 here to stay?

China is currently facing significant pushback. They are facing disruption in the supply chain due to COVID – manufacturing of goods as well as shipping is affected. The developed nations have imposed anti-dumping duties on a lot of Chinese goods. On the other hand, the INR depreciation vs Yuan is making India more competitive. The key beneficiaries of this are likely to be Auto and Auto Components, Textiles, Chemicals, and capital goods.

Speaking at the media webinar, Mr. Vikaas M Sachdeva, CEO, Emkay Investment Managers Ltd said, we expect the manufacturing sector to become the mainstream investment theme.  In the medium to long term we expect a higher allocation of investments exposure from the funds. After a long hiatus, manufacturing companies are likely to be the wealth creators, leaders of the next rally in the markets.

Speaking at the webinar, Mr. Sachin Shah, Fund Manager, Emkay Investment Managers Ltd said,

“The current financial matrix as well the policy support is best suited for the manufacturing companies to outperform the broader markets. China+1 is a big thing to watch out for. This is the right time for the Indian manufacturing companies to make a mark at the international level.”

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