March 8, 2018

Manufacturing Industry Analysis

ALWAYS – INVEST IN WHAT YOU KNOW & WHAT YOU CAN UNDERSTAND. DEVELOP CURIOSITY AS A TRAIT

 

Must know facts:

  • Manufacturing sector is a total combination of all these sectors – Automobile Industry, Drugs & Pharmaceuticals, Chemicals, Food Processing, Electrical Equipments, Cement, Textiles, Electronics & few more new age industrial productive equipments.
  • Automobile, Drugs & Chemicals (excluding fertilisers) – these sectors got highest FDI inflows considering data from April 2000 to September 2017.
  • Indian manufacturing sector’s gross value added at basic price based on 2011-12 price series was US$ 311.6 billion in 2016-17, as per the second advance estimates of Central Statistics Office.
  • Manufacturing sector grew at a CAGR of 7.32 per cent between FY12 and FY17.

 

Influencing Factors for price change:

  1. Stocks in this sectors are best judged when you understand the trends in – ‘S&P BSE Industrials’, ’’S&P BSE Basic Materials’, S&P BSE CAPITAL GOODS’ & ‘NIFTY INFRA’ indices.
  2. Index of Industrial Production (IIP) –  it constitutes mineral Mining, Electricity and Manufacturing. is one of the key indicators which acts like a barometer to measure Industrial activity on a broader basis. It is compiled and published monthly by the Central Statistical Organisation (CSO) six weeks after the reference month ends.
  3. (Please note IIP alone does not signify the real picture as it includes only organised sector, read further below for an explanation).
  4. Wholesale price index (WPI) & Consumer Price Index (CPI)  – these numbers just indicates movement of goods once it is produced/manufactured hence this number should be noted along with IIP & other reference indicators. WPI – is the price of a representative basket of wholesale goods, while CPI is used to measure Inflation. WPI is compiled and released on monthly basis by the Office of Economic Adviser.
  5. Stress on Make in India initiatives. Income Tax incentives given by government & various foreign trade policies.

Understanding the Industry:

Manufacturing has emerged as one of the high growth sectors in India. Prime Minister of India, Mr Narendra Modi, had launched the ‘Make in India’ program to place India on the world map as a manufacturing hub and give global recognition to the Indian economy. India is expected to become the fifth largest manufacturing country in the world by the end of year 2020.

One of the major puzzles about recent trends in the Indian economy is with respect to what is happening to manufacturing output. Since domestic investment rates were declining even before Indian manufacturing was hit by headwinds from the global economy, some deceleration in the expansion of production in this sector was to be expected. And then there was the drastic demonetisation move of November 2016, which created the widespread presumption that manufacturing activity would be substantially hit because of the collapse in domestic demand induced by the cash crunch.

As suggested one reason the IIP may not be capturing changes in the aggregate manufacturing sectors in the recent past and therefore any slowdown resulting from the hit to the informal sector. Unfortunately, the IIP only covers the organised manufacturing sector, and within that, the larger units. So it cannot provide us with an understanding of how unorganised manufacturing activity has fared over this period.

 

Estimated Market Size:

The Gross Value Added (GVA) at basic constant (2011-12) prices from the manufacturing sector in India grew 7.9 per cent year-on-year in 2016-17, as per the first revised estimates of annual national income published by the Government of India. Under the Make in India initiative, the Government of India aims to increase the share of the manufacturing sector to the gross domestic product (GDP) to 25 per cent by 2022, from 16 per cent, and to create 100 million new jobs by 2022. Business conditions in the Indian manufacturing sector continue to remain positive.

 

Road Ahead:

Industrial leaders in India are looking at digitalising their vertical and horizontal value chains from product development and purchasing to manufacturing, logistics and services. Also to note – Apart from investing in new product development, manufacturers are moving to product + service offering from earlier product only.

The implementation of the Goods and Services Tax (GST) will make India a common market with a GDP of US$ 2.5 trillion along with a population of 1.32 billion people, which will be a big draw for investors. With impetus on developing industrial corridors and smart cities, the government aims to ensure holistic development of the nation.

Efforts are on in forming multi-national partnerships, alliances and joint ventures in order to secure FDI, benefit from advanced technologies, and improve productivity through factory automation.  While focus continues on penetrating in domestic market, Indian manufacturers are also looking to gain a foothold in the global market by increasing sales in existing markets and by identifying new geographies.

 

Top Stocks in the industry:

BEL, Havells India, Hindustan Unilever Ltd (HUL), Cipla, Tata Chemicals, Asian Paints.. many more.

(Please note above stocks are not recommendations, they are purely for information purpose only)

Information Source / References: GMCI published by Deloitte, PWC report – Industry 4.0, IBEF, The Economic Survey 2016–17 & 17/18, Agricultural and Processed Food Products Export Development Authority (APEDA), Department of Commerce and Industry, Union Budget 2017–18, Press Information Bureau, Ministry of Statistics and Programme Implementation, Press Releases, Media Reports,

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Government Schemes Announced in Budget 2018

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Economic Survey 2018 – Volume 1 & 2

ECONOMIC SURVEY 2017-18 VOLUME 1 and 2

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