India a great market for long-term investors, bullish on manufacturing amid elections: Rakesh Sethia of HDFC AMC

Rakesh Sethia, Fund Manager & Senior Equity Analyst, HDFC AMC, believes India continues to remain a great market to stay invested in for long-term investors, especially given the robust domestic growth outlook and supportive pro-growth policies. Sethia remains bullish on the manufacturing space amid the general elections in 2024. 

Edited excerpts:

What strategy should investors use with elections in mind?

Events like elections and budgets can impact the immediate market sentiments depending on the outcome relative to expectations thereby creating volatility in the short term. However, one must note that currently India’s growth momentum remains robust as visible in multiple indicators such as GDP growth, tax collections, corporate profits, banking credit, and consumption level. In this context, India continues to remain a great market to stay invested for long-term investors, especially given the robust domestic growth outlook and supportive pro-growth policies.

Why are you bullish on the manufacturing sector now?

Our optimism for the manufacturing sector stems from multiple factors supporting growth in the long term due to which share of manufacturing in the broader economy could increase in the medium to long term. India has always had a strong need to propel its manufacturing sector for economic growth, large-scale employment, and macroeconomic stability however, it lacked focused policies and even scale.

This has now changed, India has become the third largest consumer market globally and now ranks among the top 3-5 markets for many products – this has given us the scale to be a cost-competitive manufacturer. Furthermore, global realignment of supply chains is underway popularly called the China+1 strategy, allowing our country to emerge as a credible partner. It is important to note that India is going to be the largest source of cost-effective labour supply globally in the coming decades which remains a key enabler at least in labor-intensive manufacturing. The current policy framework for manufacturing is highly supportive, with initiatives like Production Linked Incentives (PLIs), phased manufacturing programs, and a combination of tariff and non-tariff barriers. The confluence of these multiple factors underpins our belief that this is likely to be a multi-decadal theme.

Why is the manufacturing sector particularly attractive for investment at current valuations?

Headline valuations appear high across many sectors, and one must view this in the context of robust earnings growth, which is expected to stay healthy and can be supportive of valuations. We observe pockets within sectors such as auto ancillaries, healthcare, and energy where the valuation seems reasonable in the context of their projected earnings growth.

Could you provide an overview of the investment strategy that underpins the recently launched HDFC Manufacturing Fund? 

The core of the investment strategy will be that at least 80% of the portfolio is invested in businesses that are part of the manufacturing theme, likely to have a long runway for growth and are available at reasonable prices. We will look to invest with flexibility across market capitalisation.

One piece of advice for new investors?

New investors must consider that the way to wealth creation comes from primarily three components - sound investment, time, and patience. After a discussion with their advisors, one must choose the right investment products for their asset allocation that align with their financial goals and stay invested for long periods of time.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decisions.