Decoding India's Manufacturing Boom | Motilal Oswal Fund Deep Dive | Value Research

Summary

In this insightful discussion, Motilal Oswal AMC's Akil Chaturvedi and Dendra Kumar delve into the launch of the Motilal Oswal Manufacturing Fund. They highlight the fund's focus on India's manufacturing sector, driven by government initiatives like 'Make in India' and the potential for growth in sub-sectors such as renewable power, electronics, and EVs. The conversation underscores the fund's investment strategy, emphasizing quality, growth, longevity, and price, while considering macroeconomic factors and future trends in manufacturing.

Takeaways

• 🚀 The Motilal Oswal Manufacturing Fund was launched with a focus on the manufacturing sector, which the company sees as a high-growth opportunity due to India's economic policies and potential for sector diversification.
• 📈 The fund's investment strategy is built on the philosophy of high-quality, high-growth investing, targeting various sub-sectors within manufacturing that offer significant growth potential.
• 🔮 The speakers are optimistic about the manufacturing sector's evolution in India over the next decade, anticipating a shift from a service-dominated economy to a more balanced mix of services, manufacturing, and agriculture.
• 💡 Key growth sub-sectors highlighted include renewable power, electronic manufacturing services (EMS), automotive and electric vehicles (EVs), and defense, which are expected to benefit from government initiatives and global economic trends.
• 🌐 The government's 'Make in India' campaign and production-linked incentives are seen as catalysts for the growth of the manufacturing sector by encouraging domestic production and exports.
• 📊 The fund's stock selection criteria are based on the QGP principle: Quality, Growth, Longevity, and Price, with a focus on companies that can deliver higher earnings growth compared to the benchmark.
• 🛠 The research process for evaluating investments involves a thematic assessment, narrative and numbers analysis, and approval by the investment committee, ensuring a comprehensive approach to stock picking.
• 💼 Macroeconomic factors such as GDP growth, interest rates, and global trade policies are considered in investment decisions, as they directly impact the manufacturing sector's performance.
• 🌳 The speakers discuss the risks associated with investing in the manufacturing sector, including economic downturns and sector-specific challenges, and emphasize the importance of playing the theme wisely and booking profits at the right time.
• 🌍 While the fund is primarily focused on Indian companies, there is an option to invest up to 30% in international manufacturing companies, subject to regulatory limits.
• 🔮 Future trends and innovations in the manufacturing sector, such as EV technology, AI, and cloud computing, are seen as areas of excitement and potential incorporation into the fund's strategy.

Q & A

What is the Motilal Oswal Manufacturing Fund's key objective?

The key objective of the Motilal Oswal Manufacturing Fund is to invest in the manufacturing sector, which the fund managers believe is a high-growth opportunity due to the government's focus on creating manufacturing capacities, efficiencies, and exports.

How does Akil Chaturvedi describe the manufacturing sector's potential for growth?

Akil Chaturvedi describes the manufacturing sector as having a broad range of high-growth opportunities across various sub-sectors. He emphasizes that manufacturing is essential for India's economic growth and expects the sector to benefit from the continuity of government policies and reforms for at least the next 5 years.

What is Dendra Kumar's perspective on the evolution of the manufacturing sector in India over the next decade?

Dendra Kumar sees the manufacturing sector evolving significantly over the next decade, driven by the government's Make in India campaign and the post-pandemic realignment of global supply chains. He anticipates that manufacturing could become a major contributor to India's GDP, potentially reaching 20-25% in the next 10-15 years.

Which sub-sectors within the manufacturing sector does Akil Chaturvedi find most promising?

Akil Chaturvedi finds sub-sectors like renewable power, electronic manufacturing services (EMS), and the automotive sector, including electric vehicles (EVs), to be particularly promising due to government incentives and the potential for growth and innovation.

How does the Motilal Oswal AMC's investment strategy align with government initiatives like Make in India and Production Linked Incentives (PLI)?

The investment strategy of Motilal Oswal AMC is to identify areas where government reforms are promoting growth and self-reliance, such as defense, electronics, and renewable energy. The fund aims to invest in companies that are poised to benefit from these initiatives and are likely to see significant growth as a result.

What criteria does the fund use to select stocks for the Motilal Oswal Manufacturing Fund?

The fund uses the QGP principle—Quality, Growth, Longevity, and Price—as the criteria for selecting stocks. The fund managers focus on companies that can deliver high growth relative to the benchmark without compromising on quality, and they also consider valuations in the current market environment.

How does the research process for evaluating potential investments in the manufacturing sector work?

The research process involves fund managers and sectoral experts who assess thematic opportunities based on quality (e.g., RoEs, RoAs), growth (historical and outlook), cash flows (DCF analysis), and valuations. The investment thesis is then presented to the investment committee for decision-making on individual stock picks.

How do macroeconomic factors influence the investment decisions for the Motilal Oswal Manufacturing Fund?

Macroeconomic factors such as GDP growth, interest rates, and inflation are monitored to understand how they might impact the manufacturing sector and the fund's investments. Lower interest rates, for example, can encourage private sector capacity addition, which is beneficial for the manufacturing sector.

What is the outlook on the Indian manufacturing sector in the context of global economic trends?

The outlook is positive, with India witnessing success stories in sectors like electronics and automotive, and states competing to attract manufacturing capacity. The ecosystem is evolving, and the government's targeted incentives are fostering an environment conducive to large-scale manufacturing growth.

How does the fund plan to manage risks associated with investing in the manufacturing sector, which can be cyclical?

The fund managers plan to manage risks by ensuring diversification across various sub-sectors within the manufacturing theme, maintaining a focus on long-term opportunities, and being cautious about entry and exit points in the market. They also emphasize the importance of having a margin of safety and being prepared for higher volatility during economic downturns.

Are there any plans to expand the fund's scope to include international manufacturing companies?

While the fund is currently focused on Indian companies, there is an option to invest up to 30% outside of India. However, due to current challenges with investment limits, this option is on pause for now.

What future trends or innovations in the manufacturing sector are the fund managers excited about?

The fund managers are excited about trends in the EV space, technological advancements in power generation, and the adoption of AI, cloud computing, and tech-enabled services across various manufacturing sectors to improve efficiency, scale, and customer experience.

How do the fund managers feel about the current valuations as they are launching the Motilal Oswal Manufacturing Fund?

The fund managers are conscious of the current valuations and plan to build the portfolio gradually, focusing on both growth potential and valuations. They are not in a hurry and will manage the inflows to ensure the fund's strategy is executed effectively.