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.

Outlines

00:00

😀 Launch and Overview of Motilal Oswal Manufacturing Fund

The video script introduces the Motilal Oswal Manufacturing Fund, launched with a focus on the manufacturing sector. Akil Chaturvedi, Executive Director and Chief Business Officer at Motilal Oswal AMC, and Dendra Kumar, an in-house expert, join the discussion. Akil provides an overview of the fund, emphasizing the optimistic view on manufacturing within their AMC due to a philosophy of investing in high-quality, high-growth opportunities. The fund aims to capitalize on the government's focus on manufacturing capacities, efficiencies, and exports, expecting policy continuity for the next 5 years. The conversation highlights the potential for India's economy to double in the next 5 to 7 years, with manufacturing being a key driver, and the fund offers investors a chance to benefit from this growth.

05:00

📈 Manufacturing Sector Evolution and Opportunities in India

Darra Kumar reflects on the evolution of the manufacturing sector in India, noting a historical shift from service to manufacturing sectors. He discusses the 'Make in India' campaign as a turning point and the impact of the pandemic on supply chain realignment, positioning India as a beneficiary. The conversation covers the potential for manufacturing to grow from 15% of GDP to possibly 20%-25% in the next decade, with the service sector potentially balancing the economy at 50%. Akil identifies promising sub-sectors within manufacturing, such as renewable power, electronic manufacturing services (EMS), and the automotive sector, particularly electric vehicles (EVs), as areas of focus for the fund.

10:02

🌐 Impact of Government Initiatives on Investment Strategy

The script delves into how government initiatives like 'Make in India' and the Production Linked Incentive (PLI) scheme influence the investment strategy of the fund. It discusses the defense sector's transition from imports to domestic manufacturing and exports, highlighting early successes such as missile exports to the Philippines. The fund's strategy is to align with government reforms and identify opportunities in sectors targeted by incentives, aiming to support the creation of domestic capacity and self-reliance.

15:03

🔍 Criteria for Stock Selection in the Manufacturing Fund

The criteria for selecting stocks for the fund are explained, focusing on the QGP principle—Quality, Growth, Longevity, and Price. The fund managers use these criteria to identify companies that can deliver higher earnings growth compared to the benchmark. The script also touches on the importance of valuation checks in the current environment and the fund's approach to thematic investing within the broader manufacturing sector.

20:04

🌟 Research Process and Macroeconomic Influences

The video script outlines the research process for evaluating potential investments, involving fund managers and sectoral experts who focus on manufacturing and defense themes. The investment committee assesses companies based on quality, growth, and valuation narratives. Macroeconomic factors such as GDP growth, interest rates, and inflation are considered, with the current Indian economic environment appearing favorable for manufacturing due to factors like low-interest rates and controlled inflation.

25:06

🚀 Outlook on Indian Manufacturing in Global Context

Darra Kumar shares his outlook on the Indian manufacturing sector against global economic trends, expressing optimism due to the targeted government incentive programs and the success stories of domestic manufacturing. He discusses the competitive nature of the current manufacturing landscape in India, the role of government incentives in fostering growth, and the potential for India to transition from an import-dependent economy to an exporter of manufactured goods.

🛡️ Risk Management in the Manufacturing Sector

The script addresses the risks associated with investing in the manufacturing sector, such as economic downturns and sector-specific challenges. It emphasizes the importance of playing the theme correctly by entering and exiting at the right times. The fund managers aim to ensure a diversified portfolio within the manufacturing theme, focusing on high-growth sub-sectors while being cautious of economic headwinds and maintaining a margin of safety.

🌐 International Expansion and Future Trends

The conversation explores the possibility of expanding the fund's scope to include international manufacturing companies, with the current limitation of not being able to invest outside India. The script also discusses future trends and innovations in manufacturing that excite the fund managers, such as electric vehicles, power sector advancements, and the adoption of technology like AI and cloud computing across manufacturing businesses to improve efficiency and customer experience.

💹 Fund Manager's Perspective on Valuations

Akil Chaturvedi shares the fund manager's perspective on current market valuations at the time of the fund's launch. He assures that the team is conscious of valuations and will build the portfolio gradually, focusing on both growth and valuation opportunities. The fund is expected to manage inflows effectively and will not rush the investment process, ensuring a balanced approach to deployment.

Keywords

💡Motilal Oswal AMC

Motilal Oswal AMC refers to Motilal Oswal Asset Management Company, which is an asset management company based in India. It is the institution launching the manufacturing fund discussed in the video. The term is central to understanding the video's theme as it provides the context of the fund's origin and the expertise of the speakers.

💡Manufacturing Fund

A Manufacturing Fund is an investment vehicle that focuses on companies within the manufacturing sector. In the video, the launch of Motilal Oswal's manufacturing fund is the main topic, highlighting the company's optimistic view on the growth potential within this sector.

💡High-Quality Growth Investing

High-Quality Growth Investing is an investment philosophy that seeks to invest in companies that are expected to grow at a high rate while maintaining a high level of quality. In the context of the video, this philosophy is applied to the selection of companies within the manufacturing sector for the fund.

💡Sub-sectors

Sub-sectors refer to specific segments within a larger economic sector. The script mentions various sub-sectors within manufacturing, such as renewable power and electronics manufacturing services (EMS), which are seen as areas of high growth potential for the fund.

💡Government Focus

Government Focus in this context refers to the policies and initiatives taken by the government to promote the manufacturing sector. The script discusses how the government's emphasis on creating manufacturing capacities and efficiencies is expected to drive growth in the sector.

💡Make in India Campaign

The Make in India Campaign is a government initiative aimed at stimulating manufacturing in India and making it a global manufacturing hub. The video discusses how this campaign has influenced the manufacturing sector's evolution and the potential for growth.

💡Production-Linked Incentives (PLI)

Production-Linked Incentives (PLI) is a policy tool used by the government to boost domestic manufacturing by providing financial incentives to companies. The script mentions PLI as a key initiative that is driving growth in various manufacturing sub-sectors.

💡Renewable Power

Renewable Power refers to energy generated from sources that are replenished naturally and sustainably, such as wind, solar, and hydro. The video discusses renewable power as a sub-sector within manufacturing that is expected to grow due to government policies and the need for energy efficiency.

💡Electronics Manufacturing Services (EMS)

Electronics Manufacturing Services (EMS) is a term used to describe the contract manufacturing of electronics. The script highlights EMS as a promising sub-sector within the manufacturing fund, with the potential for India to become a significant exporter of electronics.

💡Quality, Growth, Longevity, Price (QGLP)

QGLP is a framework used by Motilal Oswal AMC for stock selection, focusing on the quality, growth potential, longevity of the business, and the price of the stock. The video explains that this framework will be applied to select stocks for the manufacturing fund.

💡Macroeconomic Factors

Macroeconomic Factors are large-scale economic indicators that influence the overall economic environment, such as GDP growth, inflation, and interest rates. The video discusses how these factors are considered in investment decisions for the manufacturing fund.

💡Thematic Investing

Thematic Investing is an investment approach that focuses on themes or trends, rather than specific companies or sectors. The video describes the manufacturing fund as a thematic investment, emphasizing the broad opportunities within the manufacturing theme.

💡Portfolio Management

Portfolio Management refers to the process of selecting and overseeing a group of investments. The script mentions how the fund managers will manage the risks associated with investing in the manufacturing sector, including timing the market and ensuring a margin of safety.

💡EVs and Batteries

EVs, or Electric Vehicles, and their batteries represent a growing segment within the manufacturing sector. The video discusses the potential for this sub-sector to expand significantly, indicating a focus on technological innovation and future trends.

💡Technology Innovation

Technology Innovation refers to the development and implementation of new technologies that create value or offer new solutions. The script highlights the importance of technology innovation in various manufacturing sub-sectors, such as EVs and AI in autos, as a key driver for the fund's strategy.

Highlights

Motilal Oswal Manufacturing Fund was launched with a focus on the manufacturing theme, which the company sees as a high growth opportunity.

The fund's investment strategy is based on high-quality, high-growth style investing within the manufacturing sector.

Motilal Oswal has a dominant positioning of manufacturing in their portfolios, due to its visibility as a high growth area.

The government's focus on creating manufacturing capacities, efficiencies, and exports aligns with the fund's objectives.

The expectation is that the continuity of policies and reforms will support manufacturing growth for the next 5 to 7 years.

Manufacturing is considered essential for India's economic growth and the doubling of its economy in the coming years.

The fund aims to provide investors with a dedicated thematic investment opportunity in manufacturing.

Dendra Kumar discusses the evolution of the manufacturing sector in India over the past decades and its potential for the next decade.

The 'Make in India' campaign and the post-pandemic recovery have been catalysts for the manufacturing sector's growth.

India has been an accidental beneficiary of global supply chain realignment, boosting its manufacturing sector.

The fund identifies various sub-sectors within manufacturing as promising, such as renewable power, electronics manufacturing services (EMS), and the auto industry.

Government initiatives like the Production Linked Incentive (PLI) scheme are positively impacting the investment strategy of the fund.

The fund's stock selection criteria are based on Quality, Growth, Longevity, and Price (QGLP).

The research process for evaluating potential investments involves a thematic assessment and a narrative and numbers approach.

Macroeconomic factors such as GDP growth, interest rates, and inflation are monitored to influence investment decisions.

The fund is optimistic about future trends and innovations in the manufacturing sector, including EVs, battery technology, and AI applications.

The fund managers are cautious about current valuations and plan to build the portfolio gradually, focusing on growth and valuations.

The fund has the flexibility to invest up to 30% outside India, although currently, there are no limits available for overseas investment.

Manufacturing is seen as a broad-based theme rather than a cyclical sector, with diverse opportunities across various industries.

Transcripts

[Music]

hello and welcome today the focus is on

motilal oswal manufacturing fund which

was launched earlier this month to talk

about it in detail joining me is Akil

chaturvedi executive director and chief

business officer at motilal oswal AMC

and our in-house expert dendra Kumar

welcome gentlemen thank

you first pakil could you provide an

overview of the mwal manufacturing fun

you know what are its key objectives

investment strategy yeah sure thanks uh

thanks so much for this opportunity uh

so we are uh we have been very very

optimistic on uh manufacturing as a

theme uh within our AMC uh if you see

across our portfolios uh we have a very

dominant positioning of manufacturing as

a theme across our portfolios whether it

is mutual fund portfolios or or the

alternate portfolios now why this is

happened is because uh

we practice this philosophy of high

quality high growth style of investing

and as you were assessing high growth

opportunities manufacturing was clearly

uh looking very very visible that this

is one space where uh you have quality

obviously but you also have uh uh

various sub sectors which were providing

uh high growth opportunities and

therefore uh and and and the the

opportunity is Diversified across sub

sectors so about 2 years back we started

building a position and uh very dominant

and therefore we thought that as the

government's Focus also is more on uh

creating manufacturing capacities

efficiencies export uh and uh we have

seen the continuity of the government

therefore we expect that the continuity

of policies and reforms also would be

there at least for next 5 years uh and

eventually if India has to grow to uh

you know doubling of economy in the next

5 years or 7 years and even more as we

go forward manufacturing is essential so

I think this would be a very interesting

theme uh I don't call it a sector I call

this as a theme it's a very Diversified

theme uh very few exclusions but you

have lot of lot of opportunities within

the manufacturing team uh as a as a

opportunity kind of a thing in the next

couple of years so we thought that this

makes sense to have a dedicated thematic

fund on this concept and give investors

the choice to create a satellite

positioning on this theme for next few

years uh and benefit from the

opportunity as it comes

along okay darra how do you see

manufacturing sector evolving in India

over the next decade and you know what

are the opportunities that you

anticipate well I'm seeing a whole you

know being a historian of mutual fund

I'm coming from the times of you know 20

years ago people were launching service

sector fund and you know they have done

well that was you know two decad of you

know dominance of services and you know

10 years nine years ago for the first

time I saw the launch of you know the

make in India campaign you know that

industrial V land you know silouette you

know launched by ad AG created by Ad

Agency and that was the beginning of the

make in India campaign and I did not

expect that you know something as

dramatic as now we can you know with the

benefit of hindsight we can see the

beginning of produ production link

incentive and you know as they say that

harder you you work luckier you get so

what we witnessed was the pandemic and

the post pandemic you know the recovery

and the realignment supply chain

realignment and India have been an

accidental beneficiary of all this and

that was the beginning of it you know

you can manufacture something but unless

there are takers and pandemic actually

gave us a very different take degree a

realization that if we don't really

Revive Our uh if we don't Revive Our uh

Manufacturing

uh we are in trouble we are in you know

we will have difficulty and now you know

the continuity of the government uh the

kind of long-term commitment and the

Strategic importance now we are

beginning to see the results of some of

the initiatives and that is very

confidence inspiring earlier you know

there used to be so much of cynicism

around it uh we had so many you know

dead so much of Deadpool you know public

sector struggling not to not speeding

ahead now we are witnessing you know a

very different kind of vibrant

manufacturing sector getting revived for

years together we have only thought that

you know we are a Services economy and

you know we will have we will will be

creating zato we will be creating

infosis but you know manufacturing we

just left uh and now we see a complete

turnaround so services to manufacturing

I think this is a long drawn story it is

not a narrow theme and uh there are a

lot of things which will actually emerge

which don't exist today

allow if I to take D's Point ahead you

see broadly 2/3 of our economy today is

service sector and one3 of our economy

is manufacturing plus agriculture uh

which means that uh today 15% of our GDP

comes from manufacturing just about 15%

now if you compare to several economies

which are manufacturing L you know like

China like Taiwan Indonesia all of these

countries are heavily uh dependent on

manufacturing uh to GDP uh they are all

at about 25 to

35% uh you know as a as a sector to the

overall GDP we are at 15% but when they

started their manufacturing cycle the

the the Bull Run of their manufacturing

team as a cycle they all started with 9

10% as component to GDP and they've gone

up to 25 to 35% we are at

15% and with the with the way the

current push is happening on the

manufacturing uh we feel that can we

reach to let's say 20% or 22 or 25%

which itself could be a very big

difference I feel that maybe in the next

10 15 years manufacturing could be 50%

and the Service Plus agriculture could

be another 50% I mean that's the

opportunity which is lying ahead of

course it's not happening in the next

one 2 three years it's going to take

some time but yes it's yeah all right

now AK you mentioned that you know there

are various sub sectors so the fund

which sub sectors do you find most

promising and the reason for that so

there are whole bunch of sectors you

know you can look at kex as a play you

can look at Power as a play you can look

at autos auto angs EVS within Autos as a

play uh you can look at electronic

manufacturing uh as a sub theme uh so

there are variety of opportunities I

mean but if you just have to you know

fortunately we are big investors in

manufacturing as a theme so if I just

take a queue from our own portfolios you

will find that power has been something

which we have introduced about a year

back and within power we are trying to

play the Renewable Power theme uh it's

looking pretty pretty interesting

because if you see that governments for

obviously to get manufacturing running

you need energy and to be energy

efficient we need to move out from

fossil fuel to Renewal power so if you

if if we if we feel that or at least the

government says that they want to double

the capacity from let's say 400 gaw

2,000 gwatt uh I think incremental uh

growth will come in the renewal site

whether it's wind or it's solar in fact

I was hearing one podcast and

interesting point there are about 42

nuclear plants which are coming in the

world 23 out of them are coming in China

eight are coming in India so uh so that

power as a theme after almost 15 years

and D would know I mean was forward

which was playing out remember in 20067

8 and then it all went for a toss now

it's coming back very very strongly and

you have few good businesses available

here uh EMS is something again

electronic manufacturing is what we have

played Electronics again if you see p as

a as a incentive of course is given to

this sub sector but uh electronics also

is one of the highly imported item which

we want to convert into export item so

you know that apple is now getting

manufactured in India we've sold about

we've done export of $10 billion likely

to do $60 billion in next five years so

this space you know whether it is for

computers mobile phones uh you know

several electronic components all of

this getting manufactured in India is

creating opportunities in this space

which is EMS uh um you know so real

estate I mean Auto auto again is looking

very good I mean if you just see in the

last one year for for several years

marui has been selling about a million

cars a year I mean last year they sold 2

million cars so you know Auto players

and then of course you have the auto Ang

so that's another very interesting uh

theme which we're playing so these are

some uh High growth sub themes within

the overall manufacturing tee which I

feel makes sense and you will find the

representation within this portfolio as

well you mentioned PL you mentioned

atbar Barat so how do these government

initiatives you know like make in India

also how do these schemes and

initiatives impact your investment

strategy see our investment strategy

will will basically be to follow uh what

where the reforms are happening right

where which way the government is taking

uh this whole opportunity now I think

one example if I have to give you is

defense now again defense was one of our

big import item uh for many years now uh

the current dispensation is talking

about making India for the for all the

defense equipments uh and all the

defense items Etc right so we're trying

to now uh import technology from us from

Russia and everybody is lapping up to

India because we are the big buyers of

Defense items uh so I think over a

period of time we will start to make

planes and guns and you know all kind of

missiles and not only for our own

security but this will become again a

very big export opportunity some some

small uh uh fruits you have already seen

if you have read the papers we have

exported the brahmos missile to

Philippine and they want some more

missiles we've exported guns to sorry

bullets to Germany Armenia has been

buying some uh some equipments from us

so in in a very small way but we are we

have started to manufacture defense uh

defense related equipments and now we

are also looking at this as an export

opportunity over over a period of time

so this is one uh area second of course

PL which is now given to almost 10 11

sectors it's a big initiative or big

incentive for private sector to think

big to set up capacities uh and you know

make us as self-reliant as possible

right in this space of electronics see

there are three big import items one is

oil secondly is electronics and third is

defense and in all these areas uh uh we

are taking several steps to become more

and more

Ator fair enough now can you explain

what are the key criteria you use to

select stocks for this fund so criteria

remain the same as a fund house we

follow the qgp principle so quality

growth longivity price these are the

four Frameworks which we use anyways to

select stocks across across sectors

which we anyways will use for this fund

but like I said the overarching

philosophy has been to focus on growth

uh relative growth to the indise so we

have to always be very conscious that

without compromising on quality where

can I get relatively high growth

compared to the Benchmark and uh

therefore this theme uh okay give you

I'll give you some more numbers on this

uh uh so like like I said that if in the

next 5 years our economy doubles from

$3.5 trillion to $7 trillion right uh

currently on a$3 and5 trillion $430

billion is manufactured to GDP as I told

you 15% this is likely to go up three

times to about $1.3 trillion it's a 3X

opportunity right and then within that

the export which is currently 750

billion out of which $250 billion is

your your it exports and rest is all the

merchandise export this also is likely

to double in the next 5 years right so

so so so this is a high growth theme and

you have the opportunity to invest in

companies which can give higher earnings

growth than the Benchmark earnings

growth and that is that is where uh you

know our skill sets are coming into play

and uh uh then we put the qgp check so

do the quality check growth check is

done and valuations all of these things

in today's environment I think the

valuation check is very very important

so in you know how to play out in the

current scenario from a fiveyear kind of

a Viewpoint uh yeah so I mean these are

some of the things we are uh using to

create this this theme and this is my

first uh uh first active thematic fund I

would first otherwise we we are

participating through Diversified funds

this is the first thematic fund we are

doing uh ever since the AMC

started all right and what is the

research process you when evalu Val

ating potential investments in this

sector so we have a we have fund

managers we have sectoral experts who

are who are experts in so we have a

expert who a who who only focuses on

manufacturing and defense as as themes

right so there is a this ugp while it

sounds very simple quality growth

longevity price every time we assess uh

thematic opportunities and then we look

at stocks there is a whole thesis which

is written under under the quality what

are aspects Roes roas then we look at

growth what has been the traditional

growth EPS growth what is the growth

outlook for for next one year next two

years then we look at cash flows DCF and

then finally we look at the valuation so

all bunch of things have put so like R

says every time you buy any company you

have to look at two things largely you

have to look at the narrative story of

the company and you have to look at the

numbers right so those this entire part

narrative and the numbers are

together as part of the proposal and

then it goes into the IC investment

Committee comprises of ruji and prik

agal and and then together as a team

decisions are made to pick up individual

stocks how do current macroeconomic

factors how do they influence your

investment decisions for the fund like

interest global trade poliy yes yes no

it does definitely while we are bottomup

investors focused more on uh companies

and companies fundamentals but uh it's

very important to always keep a check on

how the macros are shaping up so

obviously we are looking at our uh GDP

growth we are looking at the interest

rate so I mean if you have to see all of

these numbers today India is stacking up

pretty nicely right so we are the

fastest growing economic growth for last

many several years we are actually

beating all kinds of analyst and

research agencies who have been making

claims about 6% 6 and a half% and then

we cross 7% so the GDP is really doing

extremely well inflation broadly has

been in control uh it's been in the

comfortable band of RBI between four and

4 and 6% broadly it's been in the range

of 5% uh so that's okay for the last

several months I think almost a year and

a half we have not seen any interest

rate hikes at least uh there is more

talks of interest rate Cuts than

actually now interest rate hikes

fortunately the inflation in us also is

now reaching at closer to 2% and there

are talks about cuts out there so uh

essentially from manufacturing as a

sector uh because it's a it's heavy

Industries lower interest rates will

always help uh private sector to to add

more capacities right so interest rates

has a direct connection with how the

capacities can be added so all of this

is looking positive today uh so we are

keeping a check on how the overall

macros are shaping up uh then we look at

the micro check which is the earnings

growth and then finally obviously

liquidity Etc all of those things all

right d moving on to you what is your

outlook on the Indian manufacturing

sector in the context of global economic

Trends I'm you know just looking at

these are very early days about 8 nine

years back I was looking at it with awe

then I saw that you know this is a very

targeted you know government incentive

program and I was apprehensive that will

it really come about now we are

witnessing that okay there are success

stories we had all the you know cell

phones we were only importing and now we

are beginning to export a good component

of that so there is now a and the most

promising thing that I witnessed uh on a

on a macro basis or you know different

states competing with each other to

attract manufacturing capacity and the

kind of incentive being offered to

create large scale manufacturing

capacity so now we are thinking you know

we are talking of for you're witnessing

capacity is being built which is not

small scale we are talking of you know

capacities which can absorb thousand

people 5,000 people 10,000 people uh you

really have to and now we have a

supporting infrastructure so I'm

extremely optimistic unless something

goes wrong and of course you know with

this kind of manufacturing there is

there are inherent risk factors which is

you know large Capital outlays involved

setting up the capacity you borrow money

borrow money and it things have been

very favorable uh but things you know

little bit of change in the context and

you know complexion of the economic

environment and the ecosystem but you

know the ecosystem is evolving initially

we had this apprehension the cynicism

then it is beginning so I think it is

still early days but you know as Akil

was saying that you know for the first

time when we export our defense output

or production it'll be quite a feat in a

sense that you know historically we have

only imported now think of you know the

the speed at which things have happened

as compared to the way it is happening

right now reason to be very optimistic

and Be watchful for all the and that is

why you know the fund manager should be

you know extr the role of a fund manager

is critical I mean dendra always will

bring up some interesting points and if

I have to add I'll tell you as managers

we have to we at least at M I can tell

you we always whenever we are looking at

investing opportunities we are always

trying to the first thing we try to look

at is what is the long-term opportunity

size how big can an industry become and

within that so what are going to be your

winning categories and then we look at

category winners I'll give you some

small numbers I was just going through

my deck now over the next 10 years our

current semiconductors which is a $44

billion industry there's a potential to

go up 2.8 times to $17 billion our EMS

which I spoke about electronic

manufacturing $101 billion can go up to

$500 billion EVs and batteries just a

mere $4 billion industry it can go up to

$48 billion so I can give you a bunch of

these sub ideas but the opportunity is

huge and like dendra mentioned these are

very early days you seeing you're

hearing in Pocket small small

announcements here and there uh but at

least the we are going in the right

direction and we have to go in this

direction there's no way that we we we

if we don't go in that direction

obviously we are going to suffer but um

a manufacturing is often a cyclical

sector you know how do you plan to

manage the risks associated with

investing in this sector there there can

be economic downturns or you know sector

specific challenges how do you plan

to so I I find on that point that I

wouldn't call this as a sector or a

cyclical sector like I said it's

manufacturing as a theme it's a very

broad based Diversified tee the only

exclusion I can think of broadly is

financials bfsi and uh it right so you

just remove these two sectors you have

broadly everything uh you know even

Pharma is manufacturing Auto is also

manufacturing consumer durable is also

manufacturing everything is man so it's

much more Diversified compared to some

of the other things like we did the

defense sector Index Fund that's like uh

that's that's a sector you know so there

obviously the challenges could be

different and one needs to really time

it well having said so yes this is a

theme it is a theme and will play to the

theme whenever you play themes and

whenever you play sectors you have to uh

be very very sure that what you are

expecting from that theme of the sector

over the next 3 to 5 years and if the uh

if uh if the narrative looks good uh the

storyline is good and expectations are

good you have to come at the right time

and equally you have to go also at the

right time right so you have to play

these opportunities as satellite

opportunities come make money enjoy the

opportunity and at some stage also book

your profits right so uh uh so I would

say that uh uh of course one as fund

managers we have to be very very uh

cautious as we create the portfolio we

have to ensure that we go in the right

uh sub sectors right stocks we have to

ensure margin of safety all of those

things we will do at our end for sure

but yes if there is a economic downturn

there is some kind of a headwind global

headwinds local headwinds uh these kind

of funds are likely to go for higher

volatility higher draw downs and and

then one needs to wait it out I mean if

at least the long Trend long-term Trend

looks good then one has to go through

those uh those headwinds and then as you

come out of it obviously the normal

compounding will work uh yeah maybe

darra can add some more points that

would be more interesting this is

this is a theme which is getting very

close to the Diversified Equity Fund you

know think of it in terms of exclusion

what is excluded out of this uh as he

said that you know it Services look at

you know uh banking which is a very

sizable thing because you know look at

banking in terms of the broad indices it

is about 30 33% of the total thing large

cap indices I'm referring to and if you

look at you know modern Services

industry things like you know know uh

squashy Financial Services or you know

something like zato or many many new

things coming up it may not it may not

get factored here but rest of it I would

say that it is you know two3 of it is

Diversified and it will have all the

cyclicality and today the manufacturing

you know I have been witnessed to the

death of manufacturing sector in India

in the '90s

and uh it was a steady

decline in fact some of the survivors

are you know they they still are you

know ex they exist or they have survived

with dignity like Bajaj Auto but you

know rest of the things what I witnessed

in the '90s they have all disappeared

because today the surv the growth from

here for the manufacturing given that

incentive as compared to the '90s was

very different they were all in

competitive

businesses you know sheltered by the

licenses and they all died once they

were exposed to the competition today

the survivors are competitive with

businesses and once they are given the

incentive once they are you know once

they have the you know the government

works towards all you know moving all

the speed Breakers to their existence

survival Prosperity I think it'll be a

different thing Indian investors or

Indian industry has not been used to

this attitude or this temperament where

the government is working towards

developing a logo for making India and

you know getting and bureaucrats are

assigned that you look after this Pharma

bul drug you look after this what can we

and and it is actually this PL is quite

an innovation in terms of government

policy earlier it used to be give a land

this thing that thing you know

manufacture something tax incentive it

was over the blanket this is now

government is very sure that it is in

the business of incentivizing thing

which creates capacity and generates

employment that can come and then

somebody gets a direct you know it's

almost like a direct benefit to the

industry for setting up something which

achieves a regulator or you know say the

governance role and with that I'm very

optimistic that it is not free for all

it is not somebody running away with

government's money given that

opportunity earlier it subsidies and

this and that and everything used to be

like that this is very focused targeted

and that is why I'm extremely optimistic

about this so keep in mind that out of

the top 500 companies Nifty 500 has

index over 275 companies or around that

number are all manufacturing related

businesses so it's a very large large

component of the top 500 companies so

it's very very Diversified I mean let's

not conf because when I do Road shows

this question almost it comes up every

time that it's sectoral and it's cycal

and all that stuff and I keep clarifying

that it's very Diversified it's very

broad based the opportunities are huge

there are certain near-term challenges

for sure and one needs to keep that in

mind but it's very

broad-based all right any plans to

expand the fund scope to include

International manufacturing companies or

will it remain focused on Indian

companies open we have a limit of up to

30% uh to go outside of India but you

know the challenges currently is that we

don't have any limits to put any money

outside India so that's on pause for for

now but uh across our funds we have we

have kept uh this option available and

at at some stage when we have the limits

we we are open actually okay and last

question what future Trends or

Innovations in the manufacturing sector

are you excited about and how do you

plan to incorporate them in the fund

strategy I think uh what we are seeing

is around uh let's say the EV space is

looking very interesting from uh from

Technology Innovation perspective I

think that's one space which is coming

up uh it's going to be take some take

some time but uh that's one space

clearly uh Power again we are seeing a

lot of work which is happening on the

power side so so there again some

technology so you have to see where AI

is getting used I mean autos auto angs

that's I mean cars are no longer cars

you know nowadays the the new cars are

released the body doesn't change it's

only the software which is changing

right so whichever sector and I'm pretty

surprised to see that a lot of

manufacturing companies are using tech

tech enabl services products artificial

intelligence cloud computing all of

these things these these same

traditional old conventional businesses

are using to create more efficiencies uh

scale reduce cost uh you know and

eventually give a great customer

experience so it's happening everywhere

Innovation is happening

across I want to ask a last question to

you Akil that yes sir you know how

fearful are your fund manager about the

valuation today as you're launching this

and you'll end up with you know sizable

money to begin with deployment of

that we are conscious of uh we are

conscious of the current situation like

I said some time back uh we will take

our own time to build the portfolio we

take it easy uh we will be very

conscious in terms of every opportunity

we are buying both from the growth and

the valuation perspective uh so won't be

in a hurry uh we'll take our own sweet

time as we speak for a certain size we

have a model portfolio which is already

ready so it's not that we don't have

opportunities immediately I don't expect

uh two large inflows I think it's going

to be a contained inflow and should be

managed well I think anywhere between 7

52,000 cres kind of flow should be

manageable should not be an issue but we

are very very conscious on your question

for sure all right with that time for us

to wrap up this chat thank you for

taking the time and speaking with us

thank you so much thank thank you thank

you sir

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