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Is Manufacturing the New Investing Theme in 2024?

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Is Manufacturing the New Investing Theme in 2024?

One of the distinct features of Prime Minister Narendra Modi’s last ten years in office was his increased focus on developing the country’s manufacturing capacity and capabilities. 

Whether through policies like Make in India, the Production Linked Incentive Scheme, or the National Logistics Policy, the government successfully pushed companies to establish manufacturing bases. However, it did not produce the anticipated results. Compared to the initial target of expanding the sector’s contribution to GDP to 25% by 2022, it now only contributes 16-17%. as per IBEF.

Now, with a third term in government, can manufacturing get bigger? Let’s find out.

State of Manufacturing Sector in India

India is benefiting from the China Plus One (C+1) business strategy, as multinational companies are rapidly moving towards reducing their reliance on China for manufacturing and sourcing. India’s lower labor and production costs than China make it an attractive location for setting up such production units. 

Electronics Manufacturing in India

The National Policy on Electronics 2019, which aims to position India as a global hub for electronics system design and production, is yielding tremendous results for India.  In FY23, India achieved a significant milestone by exporting $10 billion worth of smartphones, which was negligible a few years ago. For FY24, smartphone shipment to foreign countries increased by 42% on a year-on-year basis to $15.6 billion, of which $5.6 billion was exported to the United States. 

For Apple, India is becoming the next big production base for the iPhone after China. In FY24, $14 billion worth of iPhones were made in India, making up 14% of the global total, which the company wants to increase to 24-25% by 2027 or 2028. 

Solar Manufacturing in India

India has set an ambitious target to reach 500 GW of renewable energy generation by 2030, and the lion’s share will be met through solar energy.

According to an update by Mercom India Research, in 2023, India’s solar module manufacturing capacity reached 64.5 GW, and solar cell production capacity totaled 5.8 GW. The report further mentioned that India’s total solar PV module production capacity will exceed 150 GW, and cell capacity will reach more than 75 GW by 2026. 

Defense Manufacturing in India

Another significant area in which India is increasing its focus is the production of defense equipment with a higher level of indigenization. And it is proving to be a game-changer for India.

With greater private sector participation to boost indigenous production, defense exports rose by over 240% in the last five years, reaching $1.9 billion in FY23 and expected to grow to $2.41 billion in FY24.  Airbus’s setting up of a production line in collaboration with Tata to manufacture the highly advanced C-295 military aircraft would help grow the production ecosystem and serve the export market in the future. 

Similarly, you will see how India is expanding its production capabilities in space technology, aircraft, lithium batteries, automobiles and car components, and other vital sectors that could generate revenue for India. 

Will Manufacturing be the Next Investment Theme?

The government’s greater push to build world-class production capacities is yielding results. The Nifty India Manufacturing Index, which includes stocks representing India’s manufacturing sector, has returned 24.63% per year over the last five years and increased by 58.72% in the previous year as of May 31, 2024.

Further capitalizing on the momentum, many mutual fund houses have started offering funds focused on manufacturing. 

Let’s check how some of the biggest and oldest manufacturing funds have performed in the past.

ICICI Prudential Manufacturing FundABSL Manufacturing Equity FundKotak Manufacture in India FundBSE 500 TRI
Asset Under Management (₹ Cr)4,8421,0062,098
1 Year Return71.7651.5455.9538.70
3-Year CAGR Return33.6619.4819.71
5-Year CAGR Return29.0421.2419.69
Source: Value Research (21 June 2024)

Various mutual funds launched five funds dedicated to the manufacturing theme last year, and two more are coming. Manufacturing is getting the hype because of the returns it has generated for investors over the last five years, outperforming the broader market by a healthy margin.

Risks of Investing in Stocks of Manufacturing Theme

Post-pandemic, market sentiment continues to be bullish, and no significant headwinds exist. The Nifty 50 has been up almost three times since the pandemic lows. Any investing theme during such a period will generate better returns for investors. 

Therefore, the real test for the manufacturing theme will be during bearish or volatile market conditions. 

If you look at the top five sectors of the Nifty India Manufacturing Index, which are automobiles, capital goods, healthcare, metals and mining, and oil and gas, four are cyclical. During the contraction phase, the probability of generating higher returns than the market decreases.

While the manufacturing sector is gaining strength in India in recent years, here is the dose of reality. The recent wins in the manufacturing sector have come after favorable government policy announcements and Production Linked Incentive Schemes. 

In FY24, the government disbursed about ₹13,000 crores under the PLI schemes, up from ₹2,900 crores in FY23. Also, India has lagged in expanding the manufacturing sector’s contribution to GDP. 

The manufacturing sector is expected to expand rapidly, and manufacturing-related stocks will likely benefit. However, not all stocks are expected to benefit from this investing theme, as stock performance also depends on sales and earnings growth. Therefore, before investing in such stocks, consider the potential risks.


  1. What are the top manufacturing companies in India?

    The companies included in the Nifty India Manufacturing Index are some of the top manufacturing companies in India. They include automobile, metal, mining companies, oil and gas, pharma, consumer durables, etc.

  2. How much does the manufacturing sector contribute to India's GDP?

    As of 2023, the manufacturing sector contributes 16-17% to the GDP and is expected to increase to 25% of the economy by 2025.

  3. Is it good to invest in stocks related to manufacturing?

    As of May 31, 2024, the Nifty India Manufacturing Index had a total return of 58.72% and a CAGR of 24.63% over the previous five years. While manufacturing-related stocks can provide more significant returns than the broader market, investors should carefully and thoroughly study the businesses before investing.

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I’m Archana R. Chettiar, an experienced content creator with
an affinity for writing on personal finance and other financial content. I
love to write on equity investing, retirement, managing money, and more.

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