Six ways to play the manufacturing theme?

Nilesh Shah, MD & CEO, Envision Capital, says “manufacturing is becoming meaningful and the low hanging fruit is indigenisation or localisation. So, businesses where we were earlier importing and are now trying to manufacture locally or after meeting domestic demand, are well positioned to export, are very great opportunities. If you are fine with valuations, the EMS space is interesting. Railways, defence are interesting spaces where the spending is going to remain unabated. We also have the traditional auto component companies and the industrial consumables, which are catering to several end-user segments. I also believe the whole area of specialty steel looks very interesting from a medium to long term perspective.”

A large part of your portfolio is tilted towards consumption and these are themes that we have talked about many often as well. Still convinced about that theme, still invested in those names?

Nilesh Shah: Absolutely. Within consumption, the whole premiumisation opportunity continues to play out really well and we own a couple of companies in the alcoholic beverages space where these individual companies are riding on premiumisation and the increasing penetration and the increasing acceptance or social acceptance of these products so that is a space we continue to be very constructive about.


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Hospitality is where the average Indian consumer wants to essentially allocate a good amount of time and their consumption wallets towards the leisure side. So, hospitality continues to be a very exciting opportunity that we are positive about.

The third area is, of course, luxury items and the luxury space. So, a whole bunch of consumer businesses driven by both premiumisation and the shift towards luxury products is good and we are playing a basket kind of opportunity here in that entire space.

What is the best way to look at manufacturing because now everything is getting connected with manufacturing, whether it is EV or TV. Everybody is now buying stocks in the manufacturing space.

Nilesh Shah: Yes. It is a very broad term and the reality is that so far, all of us were just looking at two broad opportunities in India. One is essentially the consumer economy and the other is the digital economy. These were the two big economies. In recent times, the physical economy driven by manufacturing, driven by infrastructure, driven by this whole energy transition, decarbonisation, electrification, all put together are becoming an extremely interesting and meaningful part of the overall investment canvas.

So, yes, I totally agree that manufacturing is becoming meaningful and I believe that the low hanging fruit is indigenisation, localisation. So, businesses where we were earlier importing and we are now trying to manufacture locally or after meeting the domestic demand, are well positioned to exports, are very great opportunities. It still continues to be a combination. If you are fine with valuations, the EMS space is interesting.

Railways, defence is an extremely interesting space where the spending is going to remain unabated. We also have the traditional auto component companies and the industrial consumables, which are catering to several end-user segments. Yes, it is a nice mix of different kinds of opportunities which currently are there and I continue to believe that this is going to be India’s decade for manufacturing and to that extent, it is a very relevant and meaningful opportunity for long-term investors.

What to your mind could be two or three stocks from the largecap space which you would say have scope to outperform the market in a meaningful manner and where there is a possibility of becoming decent wealth creators in next two-three years?

Nilesh Shah: I still think the best is to probably look at the PSU side of it. We do not yet own it meaningfully. I believe that PSUs are in for some kind of a more long-term re-rating. They have kind of re-rated meaningfully, but obviously the stock prices have rallied quite significantly. A correction has set in. It is quite possible that over the course of next, maybe a couple of months or so, if there is further correction, even in the largecap space, the PSUs do offer a great opportunity.

Post election, if a fresh bout of reforms come in specifically directed at driving more efficiency among the PSUs, I clearly believe that is going to be a great opportunity. The second is private banks. I think private banks have underperformed over the last two or three years or so. I believe private banks again are poised for good growth. The third is the entire auto pack. The automobile pack is essentially still well poised. They seem to be headed for some strong growth over the medium to long term.

I would think that in the largecap space, these three – PSUs, large private sector banks and automobile companies – can do well. We own some of them here as well. Other than that, there is Reliance which continues to be a good place to be inIt is in the right verticals across energy, retail, digital and that continues to be a very interesting play going forward. We own it as well.

When you say autos, that is also as large a pool as manufacturing. What do you like within autos?

Nilesh Shah: I clearly believe the passenger vehicle segment looks to be very good across both the passenger car as well as the two-wheeler segment. Both are very interesting pockets. The CV space and the tractor space for now is likely to take a breather. But clearly, the passenger vehicle segment including both cars and two wheelers is an interesting place to be in. Maybe along with the market, you could be more opportunistic and let there be some kind of correction there. But once you see a 5% to 10% correction, this is a good place to be in.

And anything within the entire metals basket?

Nilesh Shah: We own a metals company called Kalyani Steel where we have invested very recently. It is, of course, a traditional steel company, but has now announced some major plans for investments in specialty steel and titanium so that it can start catering to automotive, aerospace and defence businesses.

I believe the whole area of specialty steel looks very interesting from a medium to long term perspective. If we believe that we are going to see a lot of investments in the manufacturing space driven by localisation and indigenisation, all those kinds of businesses will require high quality material suppliers. And within that, clearly, speciality steel looks to be an extremely interesting space. So, we just have one play out there, which we believe is interesting.

Roy Walsh

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