Can You Invest in India’s Manufacturing Sector Through Mutual Funds?

The answer is yes!

Investing in India’s manufacturing sector through mutual funds offers a strategic Avenue for Investors Aiming to Capitalise on the Country’s Industrial Growth. Sectorral funds, which focus on specific industry, provide targeted extra to sector like manufacturing, enabling investors to benefit from sector-specific options.

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Introduction to sectoral funds

Driven by Cycalical Trends, with Limited Diversification, The Sectoral Funds Invest in a Particular Sector of the Economy Such as Infrastructure, Technology, Pharmaceuticals MANUFACTURING, ORTANCE.

This focused investment strategy aims to leverage the growth potential within a specific sector. However, due to their concentrated nature, sectoral funds inharently carry higher risk and valatiity compared to diversified equity funds.

Key characteristics of sectorral funds

1. Concentrated Exposure

Investments are primarily within a single sector, leading to potential high returns if the sector performs well, but also increased risk if the sector faces downs.

2. Cyclic Performance

The returns from sectorral funds are closely tied to the economy cycles affecting the Specific Industry, Making Its Susceptile to Market Fluctations.

3. Active Management

Fund manners actively select stocks within the sector, aiming to outperform the sector Benchmark Throughgic Stock Selection and Timing.

Performance of India’s Manufacturing Sector Post-Covid

The Covid-19 Pandemic Posed Significant Challenges to India’s Manufacturing Sector, Leading to Disrupties in Supply Chains, Labor Shortages, and A Decline in Production. However, the sector has demonstrated resilience and a robust recoverry, influenced by Several Key Factors:

1. Government Initiatives

(a) Production-Linked Incentive (PLI) Scheme

Introduced to boost domestic manufacturing and attract investments in Key Sector, the Pli scheme Offers Financial Incentrites Based on Incremental sales.

(b) Make in India and Viksit Bharat

These flagship programs AIM to Transform India Into a Global Manufacturing Hub by Encouring Both Domestic and Foreign Companies to Produce Their Goods in India.

2. Shift in Global Supply Chains

(a) Diversification from China

Global companies are re-evaluating their supply Chain Dependencies India has emerged as a viable alternative.

3. Improved Industrial Output

(a) Purchasing Manners’ Index (PMI)

India’s manufacturing PMI has consistently remained above the 50-mark, indicating expansion.

(b) Index of Industrial Production (IIP)

The IIP data shows a steady risk in manufacturing output, with sector like pharmaceuticals, electronics, and automotive leading the growth trafficory.

4. Foreign Direct Investment (FDI)

(a) Increased inflows

The manufacturing sector has witnessed a SURGE IN FDI.

Challenges and Considerations

(a) regulatory and infrastructure bottlenecks

Despite the positive Momentum, Challenges Persist, Including Complex Regulatory Framework and Infrastructure Deficits.

(b) Economic Slowdown Indicators

High inflation, reduced consumer spending, and global economic uncertainteies impact growth projections.

Why investment in India’s manufacturing sector?

The manufacturing sector is a cornerstone of India’s Economic Development, Contributing Approximaately 16-17% to the Gross Domestic Product (GDP) and Providing Employment to Nearly 20% of the WorkForce. Further, The Budget 2025 has given voice to the National manufacturing mission For furthering the make in India by providing policy support, Execution Roadmaps, Governance and Monitoring Framework Through Centrals and Statees Bodies. Investing in this sector offers sector sector sector compeling advantages:

1. Economic Growth Driver

(a) GDP Contribution

A Robust Manufacturing Sector Propels Economic Growth, Enhances Export Potential, and Reduces Trade Deficits.

(b) Employment Generation

Manufacturing Creates Job Opportunities Across Various Skill Levels, Contributing to Socio-Economic Development.

2. Policy Support and Reforms

(a) Inventural and subsidies

Government Policies, Such as tax incentives, subsidies, and infrastructure development, create a condition a health environment for manufacturing enterpresses.

(b) Ease of Doing Business

Reforms aimed at simplifying regulations and improving business processes attract bot domestic and foreign investments.

3. Demographic Advantage

(a) Young Workforce

India’s Demographic Dividend Offers a Large, Youthful, and Skilled Labor Pool, which is attractive for manufacturing activities.

(b) Rising Middle Class

An expanding middle class increase domestic consumption, driving demand for manufactured goods.

Top Manufacturing Sector Funds in India

Investors Seeking Exposure to India’s Manufacturing Sector Can Consider Sector Sectoral Funds that Focus on this Industry. As per amfi’s ReportThe sectorral/thematic category of mutual funds when Category Saw Marginal Outflows. Below are the top 10 sectoral funds based on 1-year and 3-yar returns available on kuvera:

Top 10 sectoral funds with 1-yar returns

SR. No. Fund 1 YR Return Ter Amc
1 HDFC Pharma & Healthcare Growth Direct Plan 21.11% 0.97 HDFC Mutual Fund
2 Whiteoak Capital Pharma & Healthcare Growth Direct Plan 20.37% 0.68% Whiteoak Capital Mutual Fund
3 IDBI Banking & Financial Services Growth Direct Plan 18.73% 1.50% IDBI Mutual Fund
4 SBI Technology Opportunities Growth Direct Plan 16.00% 0.84% SBI Mutual Fund
5 ICICI PRDENIL PHARMA HEALTHCARE & Diagnostics Direct Plan 15.48% 1.10% Icici prudential mutual fund
6 DSP Healthcare Growth Direct Plan 15.25% 0.58% DSP Mutual Fund
7 DSP Banking & Financial Services Growth Direct Plan 15.18% 0.71% DSP Mutual Fund
8 Kotak consumption growth direct plan 15.01% 0.55% Kotak Mahindra Mutual Fund
9 HDFC Technology Growth Direct Plan 14.43% 0.98% HDFC Mutual Fund
10 Axis Innovation Growth Direct Plan 14.40% 1.31% Axis Mutual Fund

Source: Kuvera, Feb 26, 2025

Top 10 sectoral funds with 3-yar returns

SR. No. Fund 3 YR Return Ter Amc
1 SBI PSU Growth Direct Plan 33.26% 0.78% SBI Mutual Fund
2 Invesco India PSU Equity Growth Direct Plan 31.22% 0.85% Invesco Mutual Fund
3 Aditya Birla Sun Life PSU Equity Growth Direct Plan 31.14% 0.55% Aditya Birla Sun Life Amc Ltd.
4 HDFC Infrastructure Growth Direct Plan 30.99% 1.07% HDFC Mutual Fund
5 Icici prudential infrastructure growth direct plan 30.64% 1.15% Icici prudential mutual fund
6 Nippon India Power & Infra Bonus Bonus Growth Direct Plan 29.87% 0.96% Nippon india mutual fund
7 Franklin Build India Growth Direct Plan 28.81% 1.01% Franklin Templeton
8 Franklin India Opportunities Growth Direct Plan 28.34% 0.53% Franklin Templeton
9 DSP India Tiger Growth Direct Plan 28.13% 0.83% DSP Mutual Fund
10 Quant Quantamental Growth Direct Plan 27.50% 0.61% Quant Multi Asset, Multi Manager

Source: Kuvera, Feb 26, 2025

FD up to 9.40% on Kuvera

Wrapping up

To wrap up, Investing in Sectoral Funds, Especially in India’s manufacturing sector, offers immense growth potential but comes with Higher Risks. The post Covid Recovery, Government Investments, and Increasing Foreign Investments Make the Sector an attractive investment avenue. However, Investors Must Conduct Thorough Research, Consider Market Cycles, and have a long-term percetic before investment in sectoral funds. With the right approach, manufacturing sector mutual funds can be a valuable addition to an investment portfolio.

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Arevuk Advisory Services Pvt Ltd | Sebi registration no. Ina200005166
Disclaimer: Mutual Fund Investments are Subject to Market Risks. Read all scheme related documents carefully. Registration Granted by Sebi, Membership of Basl (in Case of IAS) and Certification from Nism in No Way Way Guarantee Performance of the Intermediary or Provide Any Assurance of Returns to Investors. Investments in Securities Market are Subject to Market Risks. Read all the related documents carefully Before Investing. The Securities Quoted are for Illustration only and are not recommendatory.

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