Top Manufacturing Mutual Funds in India to Boost Your Portfolio

According to the Economic Survey, Over the last five years, a seismic change has occurred in the global manufacturing realm, with major multinational companies, including Apple and others, looking to 'de-risk' themselves from China, which was traditionally known as the 'world's factory'. The 'China Plus One' strategy adopted by several MNCs has boosted India's manufacturing sector, as global firms are diversifying production bases to reduce dependency on China.

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Rising consumer demand, particularly in sectors like automotive, electronics, pharmaceuticals, and renewable energy, has been a major growth catalyst. Domestic and export demand for electric vehicles (EVs), mobile devices, pharmaceuticals, and consumer goods has also surged, pushing manufacturers to expand capacity and adopt advanced manufacturing technologies.

By 2030, India could export items worth USD 1 trillion, making it the third most sought-after location for Manufacturing in the world. As of May 2024, India's Index of Industrial Production (IIP) showed a year-on-year growth of 5.9%, a slight increase from 5.7% in May 2023. The manufacturing sector, however, grew at a rate of 4.6% year-on-year, a deceleration compared to its 5.7% increase the previous year.

The Manufacturing industry in India is expanding and offers significant investment opportunities. The country's economy is being fueled by its rising competitiveness, greater import substitution and export potential, and rising global demand for Indian products. Although there may be variations in some sub-sectors, the Manufacturing sector's long-term trend is still positive. This is driving investors' interest in Manufacturing stocks in India.

[Read: Is It Wise to Invest in Sector & Thematic Funds And Small Cap Funds Now? Know Here]

This growth trajectory could be quite advantageous for investors who find Manufacturing companies with excellent capabilities and a track record of successful management. The cyclical nature of the Manufacturing industry offers opportunities for substantial profits, particularly for businesses with strong capabilities and forward-thinking leadership.

As India's Manufacturing story unfolds, seeking its growth trajectory could possibly unlock great investment opportunities for investors in the long term.

According to market experts and historical data, sectors experiencing rapid growth have witnessed companies generating remarkable returns, and this trend is expected to continue in the Manufacturing sector. Investing in manufacturing mutual funds can be an effective way to capitalize on India's industrial growth and the global shift toward localizing supply chains.

If you are an investor who wants to seize profit from the expansion of Manufacturing industry, here's a list of the top 5 Mutual Funds with a high allocation to Manufacturing stocks:

#1 - ICICI Pru FMCG Fund (Thematic Fund)

ICICI Pru FMCG Fund invests in stocks of securities forming part of the FMCG sector in India. The scheme invests across market cap, and as of September 2024, it holds 77.17% allocation in large caps, 7.40% allocation in mid-caps and 10.34% in small caps.

ICICI Pru FMCG Fund holds a maximum exposure of 29.52% in stocks of ITC Ltd., which is an Indian Manufacturing conglomerate with businesses spanning Fast Moving Consumer Goods comprising Foods, Personal Care, Cigarettes and Cigars, Education and stationery Products, Incense Sticks and Safety Matches; Hotels, Paperboards and Packaging, Agri Business, and Information Technology.

The scheme also carries an allocation of 17.69% to HUL Ltd., a British-owned Indian consumer goods company with 50+ brands spanning 16 categories, such as fabric solutions, home and hygiene, life essentials, skincare, hair care, oral care, deodorants, tea, coffee, ice cream & frozen desserts, food and health food drinks, the Company is a part of the everyday life of millions of consumers.

Along with a fair allocation to other market leaders in the sector, the scheme's overall allocation to Manufacturing stocks accounts for 59.35% of it's total assets.

#2 SBI Equity Minimum Variance Fund (Thematic Fund)

SBI Equity Minimum Variance Fund invests predominantly in a diversified basket of companies in the Nifty 50 Index while aiming to minimise portfolio volatility. The scheme currently has an AUM of Rs 236.82 crores and is benchmarked against S&P BSE Sensex TRI.

As of September, 2024 the scheme invests 100% of its assets in large caps. SBI Equity Minimum Variance Fund holds maximum exposure in stocks of companies like - Britannia Industries Ltd. at 8.15% and HUL at 8.04% (leading companies from the FMCG sector who emphasise on Manufacturing daily need consumer goods). Currently, the overall exposure to Manufacturing stocks accounts for 47.55% of the scheme's assets.

#3 - HDFC Manufacturing Fund (Sectoral Fund)

HDFC Manufacturing Fund is categorised as a sectoral scheme that invests in a concentrated portfolio of equity & equity-related instruments of the companies in the manufacturing sector in India.

Currently, the scheme holds an AUM of Rs 13,630.95 crores. As of September 2024, the fund has a 60.81% allocation in large-cap stocks and 21.56% in mid-cap stocks, whereas 14.41% in small-cap stocks. Do note it has a higher allocation to mid and small-cap stocks, which are considered highly risky and sensitive to market fluctuations.

The scheme has an overall allocation of 38.80% to Manufacturing stocks. The highest exposure of 5.56% is in Mahindra & Mahindra Ltd. and 5.23% in Sun Pharma Ltd. In addition, the scheme has decent exposure to various market leaders across sectors like Maruti Suzuki India Ltd. (Automobile), RIL, JSW Steel Ltd., and Dabur India Ltd.

#4 Kotak Manufacture in India Fund (Thematic Fund)

Launched in February 2022, the scheme endeavours to create a portfolio substantially constituted of companies from India's manufacturing space. The scheme holds an AUM of Rs 2,617.97 crores as of September 30, 2024.

In terms of Manufacturing stocks, Kotak Manufacture in India Fund holds a high allocation of around 5.15% in Sun Pharma Industries Ltd. (one of India's most extensive and sophisticated pharmaceutical manufacturing networks, with over 40 facilities worldwide, including major production sites across India in locations like Gujarat, Himachal Pradesh, and Maharashtra).

The scheme has an overall allocation of 37.28% to Manufacturing stocks. As of Sept 2024, the fund has a 56.53% allocation in large-cap stocks and 23.67% in mid-cap stocks, whereas 14.60% in small-cap stocks. Bear in mind it has a high exposure to mid and small-cap stocks.

#5 Mahindra Manulife Manufacturing Fund (Sectoral Fund)

Recently launched in June 2024, Mahindra Manulife Manufacturing Fund invests in a portfolio of companies/funds that are likely to benefit directly or indirectly from manufacturing-led demand in India. The fund has 55.62% allocation to large-cap stocks, 7.74% in mid-cap stocks, and 34.17% in small-cap stocks.

The overall allocation to Manufacturing stocks is around 32.70%, and the highest is in stocks of ITC Ltd. The scheme also holds a fair exposure to other Manufacturing stocks like - HUL, M&M Ltd., RIL Ltd., etc. Currently, it holds an AUM of Rs 946.10 crores.

In addition to these mutual funds, the recently launched Invesco India Manufacturing Fund in August 2024, aims to invest in companies that are part of the Manufacturing theme in India/Overseas. It endeavours to hold a majority of its allocation to Manufacturing stocks.

However, do note that the scheme is new in the market and does not carry a long performance track record; thus, investors may consider their suitability before investing in this scheme.

Outlook for the Manufacturing Sector in India

India's Manufacturing sector is gradually moving towards more automated and process-driven Manufacturing, which should improve efficiency and enhance industry production.

India's Manufacturing sector has expanded into new areas and market segments due to growth in priority industries and positive megatrends. Under the 'Aatmanirbhar Bharat' and 'Make in India' projects, significant measures have been launched to improve India's Manufacturing capacity and exports across industries.

According to a report, the Government's Make-in-India initiative has facilitated investment, encouraged investment, and created world-class infrastructure. Additionally, deficiencies in domestic Manufacturing capacity have been rectified.

Sector specific Production Linked Incentives (PLI) have been introduced in the aftermath of the pandemic to encourage domestic and foreign investment and to create global Manufacturing industry leaders. The Indian Government intends for Manufacturing to account for 25% of the nation's economic output by 2025 through the execution of several programmes and policies.

The immense size and capacity of the domestic market, the cheaper cost of labour, the steadily increasing infrastructure, and connectivity, among other things, have all contributed to make India a lucrative investment destination for foreign Manufacturing companies.

India now possesses the physical and technological infrastructure needed to increase the Manufacturing sector's contribution to the economy and realistically compete for a key position in global supply chains.

With a 6.03% increase during FY23, Manufacturing exports reached the highest annual export total ever of US$ 447.46 billion, breaking the previous year's record export total of US$ 422 billion. India's Manufacturing industry has the potential to generate $1 trillion in revenue by 2025.

To conclude...

Considering all the aspects related to the Manufacturing industry, it is projected that it has a positive outlook in the long run, and this makes it a beneficial investment choice for individual investors seeking long-term capital growth. Investors can gain exposure and benefit from the growth of the Manufacturing sector by indirectly investing in Manufacturing stocks via mutual funds.

However, before making an investment, it is important to run a detailed analysis of the holding companies under the Manufacturing theme and performance of the mutual fund schemes. Also, one must ensure their suitability to the mutual fund schemes with a high allocation to Manufacturing stocks based on their risk appetite, investment horizon, and objectives.

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MITALI DHOKE is a Research Analyst at PersonalFN. She is an MBA (Finance) and a post-graduate in commerce (M. Com). She focuses primarily on covering articles around mutual funds including NFOs, financial planning and fixed-income products. Mitali holds an overall experience of 4 years in the financial services industry.
She also actively contributes towards content creation for PersonalFN’s social media platforms in the endeavour to educate investors and enhance their financial knowledge.
 

Disclaimer: Investment in securities market are subject to market risks, read all the related documents carefully before investing.
This article is for information purposes only and is not meant to influence your investment decisions. It should not be treated as a mutual fund recommendation or advice to make an investment decision in the above-mentioned schemes.