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Indian manufacturers may be on the brink of discovering their potential. The incentives offered under the production-linked incentive (PLI) scheme is a catalyst that investors are betting could be a game-changer. However, there are very few publicly traded firms that could benefit from the programme. Shares of the few that are listed have already surged considerably on the announcement of these incentives.

Analysts estimate that the scheme could add $144 billion to revenues of companies by FY27 and India’s exports could increase by $55 billion. Besides, these incentives are also likely to create 2.2 million jobs and see $22 billion of direct capital spending, according to an 11 December report by Credit Suisse India.

Among the sectors that could benefit hugely is electronics manufacturing, particularly mobile manufacturing. The PLI scheme provides incentives equivalent to 4-6% of incremental sales over a base year for locally made electronic products to propel India into the top three mobile manufacturers.

Electric vehicle makers, battery producers, textile firms and food processing companies are some others that will gain from the push to encourage local manufacturing. About 62% of the second PLI scheme outlay of 1.46 trillion is towards supporting automobiles, batteries and drugs production over a five-year period.

“Production-linked incentives are a meaningful change in India’s industrial policy," said the Credit Suisse report.

But there are some sceptics. “China has built infrastructure and logistic parks, which provide facilities such as power at much cheaper rates. Even the land cost for manufacturers is lower (than India). India is lagging in these aspects. Eventually, the market will realize that the benefits being expected from the package are not coming as easily or as quickly as was anticipated," an analyst at an institutional brokerage said, seeking anonymity.

Of course, this is not to say there won’t be gains. Among the beneficiaries could be the domestic electronic and white goods manufacturing sectors. Incentives in excess of 50,000 crore are up for grabs. Stocks of Amber Enterprises Ltd and Dixon Technologies Ltd have already run up significantly post the announcement; hence, additional gains will be gradual.

The pharma sector is likely to see benefits of about 25,000 crore over the next five years, with the PLI scheme extended to the entire sector and not just a few segments. Stocks that could benefit are Divi’s Laboratories Ltd, IPCA Laboratories Ltd and Cadila Healthcare Ltd.

Some of the other beneficiaries include auto parts makers Minda Industries Ltd, Exide Industries Ltd and Amara Raja Batteries Ltd, as they tap opportunities offered by the Atmanirbhar Bharat initiative. Media reports said that companies are accelerating plans to produce lithium-ion cells in a bid to benefit from the 18,000 crore worth of government subsidies announced under the PLI scheme.

Astra Microwave Products Ltd, a defence equipment maker, is expected to benefit from the defence ministry’s decision to curb imports of 101 items under the Atmanirbhar programme. And Indo Rama Synthetics (India) Ltd is likely to set up additional capacity to utilize benefits under the PLI scheme of 1,068 crore announced for this sector.

But analysts said beyond this handful of companies, there are not many listed ones that could benefit from the scheme.

To be sure, much will depend on which companies start new projects under the schemes; but as of now, there are just a few listed companies that fit the scheme’s criteria.

“For some sectors, there are no listed pure-play companies that can benefit from this package. The scheme is good for market sentiment, but we don’t know whether the narratives being drawn will be successful as assumed by the market. So, the market’s optimism can be misplaced on this front," a strategist at an investment management firm said on condition of anonymity.

Besides, the schemes will take some time to play out as land acquisition costs are still exorbitant. But nevertheless, the idea behind the introduction of the PLI scheme may vary from industry to industry.

“Policy objective differs for various sectors; for mobile, textile, pharma (net exporters), it could be to boost exports, while for the rest, it could be to substitute imports for cost or security," said the Credit Suisse report.

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