Lens on “Make in India”; manufacturing stocks under a cloud

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Worried that the lack of a strong mandate would bring in a coalition government that would decelerate the earlier government’s momentum on manufacturing and infrastructure companies, investors sold shares of these companies. The Economic Times reported that fund managers and analysts too advised investors to reduce their optimism on manufacturing as an investment at least till such time as the new government takes charge and sends clear signals on its intentions and policies.

The BSE Infrastructure Index went down 15.1% and the Manufacturing Index tumbled 6.3% on June 4, when the broader Sensex tumbled 5.7% and wiped out Rs 30 lakh crore of investor wealth.

Bharat Electronics and Titagarh Rail Systems tumbled 19.21% and 16% respectively, while Ircon International, Hindustan Aeronautics, Mazagon Dock Shipbuilders and Rail Vikas Nigam fell between 1% to 17%. Indian Railway Finan Corp, Ashoka Buildcon and IRB Infrastructure Developers declined between 9% and 11%.

“The narrative around ‘Make in India’ is not expected to change but the dynamics may be different as the new reality of the NDA coalition government plays out. However, the pace of execution in policies may slow down a bit so the expectations from infrastructure and manufacturing stocks may be toned down,” A Balasubramanian, MD & CEO, Aditya Birla Sun Life AMC told the newspaper.

This year the BSE Infrastructure Index moved up 44.8% while the BSE Manufacturing Index moved up 14.3% compared to the 5.8% rise of the broader Sensex.

A huge number of investors expected the NDA to secure a comfortable majority in the elections that would allow the government to continue its agenda of reforms in industry, investment and labour. Now analysts expect the 1new coalition government to shift its focus from growth and investment to consumption.

“The capex cycle may also slow down as the government pivots (slightly) to revex (revenue expenditure) spending, and corporates may get into a wait-and-watch mode for a few quarters,” said brokerage Emkay Global’s analysts in a note to clients.

Sandeep Raina, executive vice president-research at Nuvama Professional Clients group said the emphasis on manufacturing and infrastructure could be affected. “There may be a short term pause on account of some consolidation with no upside in the near term. but no big corrections are expected. Multiple minor corrections are likely and buying opportunities could emerge post corrections but not immediately,” said Raina.

However, there are no major concerns on the manufacturing side and Production Linked Incentive (PLI) schemes would continue to gain momentum.

“While short-term corrections are expected due to volatility, the nature of the corrections is not expected to be as steep as the fall today. Investors can buy from a long-term perspective and watch out for the ministerial allocation and the Budget for cues,” added Aditya Birla Sun Life AMC boss Balasubramanian.