How the Axis India Manufacturing Fund is helping investors harness a theme that has the potential to transform the economy!

India’s growth story is at an interesting inflection point. The country’s economic growth position seems to be further cemented by the rapidly transforming manufacturing sector, led by strategic initiatives like 'Make in India', and a spate of positive reforms.

According to the Economic Survey 2022-23, presented at the Budget Session of Parliament for FY24, the manufacturing sector in India has the potential to become the largest global manufacturing hub in this decade. .

The sector plays a crucial role in the country’s economy and encompasses a wide range of industries. Right from automobiles and textiles to pharmaceuticals and electronics, most sectors have witnessed significant growth and transformation.

Currently, India’s manufacturing sector presents a three-pronged opportunity led by domestic demand, the government’s push to encourage manufacturing and fast optimising supply chain capabilities. Furthermore, the sector is gradually shifting to more automated and process-driven manufacturing, which is expected to increase efficiency and boost production.

This means that there is an interesting opportunity for investors to be a part of this growth story.

Against this backdrop, Axis Mutual Fund has launched the Axis India Manufacturing Fund, an open-ended equity scheme representing the India Manufacturing theme.

To help decode the opportunity and understand the nuances of building wealth in the long run, we spoke to Nitin Arora, Fund Manager - Equity, Axis Mutual Fund. Here are the key takeaways from the conversation.

Core manufacturing themes and levers

With Prime Minister Modi setting the 'techade' agenda for making the 2020s a transformative era with technology, there are several exciting themes that have emerged under the ‘Manufacturing Theme’, including Industry 4.0, AI integration, 3D printing adoption, and IoT-driven processes, to name a few.

“My sense is that over the next four or five years, the sector has the potential to do well in the country,” said Nitin expressing his optimism about the resurgent Indian manufacturing story and thereby, the fund.

“There are a lot of levers, including a strong governmental push for capital expenditure, private capex, green shoots from new categories, government production-linked incentive schemes, and innovations in the supply chain, to cater to both the local and export market,” he added.

Demand: Domestic + Global

India has one of the largest aspirational population in the world, and the Indian economy is heavily dependent on consumption. The large middle class demands internationally competitive goods. The domestic and export demand makes manufacturing in India viable while also making Indian manufacturing less cyclical due to global economic vagaries.

The government's 'Aatmanirbhar Bharat’ campaign launched in 2020 to deal with economic challenges posed by the pandemic propelled India down a self-reliant path in all aspects of manufacturing. Importantly, the push for import substitution saw key reforms and larger budgets from the government.

Importantly, the China+1 narrative is opening up India’s manufacturing and component ecosystem. India has adopted import restrictions to curb imports from China and to create demand for domestic products. Growth is being driven by significant manufacturing opportunities in segments such as railways, defence, automotive, industrial, telecom, medical and mobile phones to name a few, while the government is also focusing on developing its component ecosystem relating to manufacturing of semiconductor and assembly.

“India used to spend about a lakh or two lakh crores of its GDP on manufacturing before the pandemic, and we saw that number go up to approximately 10 lakh crores after the Aatmanirbhar Bharat campaign was launched,” revealed Nitin.

The focus has paid off handsomely for the sector, with manufacturing emerging as the largest gainer of FDI flows and the registration proportion of manufacturing companies moving up to 28% in CY22 vs 22% in CY18. Meanwhile, Indian exports surged to $450 billion in FY23, vs a pre-COVID level of $330 billion in FY19.

The fund’s investment thesis

Nitin also spoke about how the fund aims to identify companies across three key factors of the Indian economy: investments, consumption, and net exports.

“When it comes to the investment theme, we’re focusing on manufacturers investing in factory equipment and R&D to build production capacity. For the consumption theme, we’re looking at industries with rising demand trajectory due to domestic consumption and premiumisation narrative,” he said.

“Finally, with the net exports theme, we’re focusing on companies benefiting from India’s integration into the global supply chain,” he added.

Nitin explained that the core investment strategy of the fund is centred around key aspects like active sectoral allocation, a bottom-up approach, a sharp focus on under-represented segments of Indian listed market, Multicap stock selection, and a quality-focused style, with the aim to identify potential winners in the manufacturing theme.

How can one invest in the Axis India Manufacturing Fund?

Benchmarked to NIFTY India Manufacturing TRI, the fund is looking at a typical investment horizon of five-plus years - ideal for investors who are looking for capital appreciation over the long term. With a minimum application of Rs 500 and in multiples of Rs 1 thereafter, it follows the same process as any other mutual fund.

“The new fund offering (NFO) is scheduled for December 1- 15, 2023. Once the allotment is completed, the fund becomes open for regular subscriptions and redemptions on a daily basis,” said Nitin.

“Investors can invest in our Axis India Manufacturing Fund with a lump sum investment or via SIP if they prefer building their investments incrementally,” he added.

^{Sources: Avendus Spark (as on 31st Aug), Axis MF Research (as on 20th Nov)}

^{Product Labelling and Riskometer:}

^{AXIS INDIA MANUFACTURING FUND (An open-ended equity scheme representing the India manufacturing theme)}

^{(The product labelling assigned during the New Fund Offer is based on internal assessment of the Scheme Characteristics or model portfolio and the same may vary post NFO when actual investment are made.)}

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