Manufacturing Sector To See Revival This Decade, Says ICICI Prudential AMC's Anand Shah
There are sub-segments of manufacturing which look attractive structurally, he says.
The Indian government's push for manufacturing through 'Make In India', production-linked incentives and China's diminishing export incentives will drive capex cycle through this decade, benefiting the sector and those allied to it, according to Anand Shah of ICICI Prudential AMC.
"The 2010-2020 decade was a forgettable decade for manufacturing for India, while China was relentless," Shah, head of PMS and AIF investments at ICICI Prudential AMC, told NDTV Profit.
While China exported deflation to the world, manufacturing goods prices remained soft, he said. On the other hand, India's 2003-2007 capex boom fizzled out after the global financial crisis, adding leverage on Indian corporate balance sheets and saddling banks with NPAs, Shah said.
"There is a change of regime in China and India. In China, they said (choose) quality of GDP more than quantity. So, focus on pollution control, decarbonisation while labour costs kept rising and export incentives kept on diminishing," Shah said.
In contrast, over the last two to three years, the Indian government's push for incentivising manufacturing is set to revive the sector this decade, he said. "Related businesses like utilities will also benefit."
Shah said the fund is building a portfolio of companies that will scale up from small-cap to mid-cap or mid-cap to large-cap, giving investors an opportunity to tap into the growth phase.
"Large-cap space has very little manufacturing and related businesses. It's dominated by IT, financials and consumer facing businesses. So, small and mid-cap space in manufacturing provides a lot of opportunity than large caps."
Key Picks
Shah, who manages a portfolio of over Rs 19,000 crore, said there are sub-segments of manufacturing which look attractive structurally. "India has under-invested in power. The country has to invest in capacity increment in power generation, distribution and transmission. Rising energy intensity will be key growth catalyst."
He remains upbeat on railways and metals, which will benefit from global strategy to decarbonise economies, Shah said.
His portfolio has 35% allocation to manufacturing and 21.3% to manufacturing-allied companies, as of November 2023. The top picks in the space include Larsen and Toubro Ltd. (7.14%), Godawari Power and Ispat Ltd. (5.84%) and VRL Logistics Ltd. (3.93%).
In terms of the real estate sector, which did well in 2023, Shah said income growth has been lower relative to property prices in large cities. Further spike in prices will mute demand and create volume issues for companies, according to him.
Watch the full conversation here:
