Even with the recent volatility in the Indian market, the stocks that have stayed resilient are the ones that come from the sectors favoured by government policies focused on making India self-reliant, future-ready and innovative.

The term ‘Atma-Nirbhar’ has evolved from a buzzword to a solid profitable strategy. It has become essential to evaluate the impact of policy reforms and drill down into their impact on the markets.

The idea behind the policies is to make India self-sufficient while boosting manufacturing and innovation and generating employment opportunities. The focus is on new economic sectors, renewables, and areas where India can become a crucial manufacturing hub.

There are three government policies that we think are important to spot winners in the current stock market

• Make in India or Atmanirbhar-Bharat

• Profit Linked Incentives and,

• China plus One

  

Let’s dig a little deeper into each of these themes and determine which sectors will stand out in light of these policies.

Atmanirbhar-Bharat

The central government has started targeted efforts to address reforms and regulations to boost Indian manufacturing and infrastructure and incentivize and ease the functioning of specific key sectors in the economy. In addition, the government has underlined inclusive development, productivity enhancement, energy transition, and climate action as the four pillars of development that will drive the nation’s growth trajectory to new levels.

With this scheme, we can expect reforms in infrastructure and real estate development to boost domestic manufacturing in critical areas like semiconductors, electronic goods, auto components, defence, and white goods. Specialty Chemicals and Metals will also be favoured, and the energy transition and climate action push will select the renewable energy and electric mobility ecosystem. The Indian Pharmaceutical sector will see favourable growth through this initiative. The digitization of various industries, including fintech and e-commerce, and the development of the India stack that favours MSMEs and startups will also be a gainer.

Profit Linked Incentive Schemes

Much of the domestic manufacturing sector faces a lack of a level playing field vis-à-vis competing nations. Indian manufacturers on account of lack of adequate infrastructure, domestic supply chain, and logistics; high cost of finance; inadequate availability of quality power; limited design capabilities and focus on R&D by the industry; and inadequacies in skill development.

With the PLI scheme, the GOI intends to extend an incentive of 4% to 6% on incremental sales (over a base year) of goods manufactured in India and covered under target segments, to eligible companies, for five (5) years.

There would be a direct correlation between stocks selected for PLI incentive and the profitability growth because of the incentives.

China Plus One

China has been the fastest growing nation over the last decade and is the hub of global manufacturing. Still, recently, due to higher labour costs, stringent environment, compliance costs, and other challenges, the share of Chinese manufacturing is shrinking. Various nations like India, Vietnam, Thailand, Bangladesh, and Malaysia compete for a piece of the pie. While the Indian sectors that can be an alternative to China are already booming, the Indian government is also incentivizing these sectors to speed up India’s market share as an alternative to China. The corporate tax cut, PLI, made in India is part of this broader strategy. The government is even putting anti-dumping duty and import licensing schemes to boost domestic manufacturing.

Sectors to Focus

The themes selected in our list are interlinked but a clear list of sectors come out as clear beneficiaries of these initiatives. Here is our chosen list:

So can we invest in the Atmanirbhar theme?

We think so! A bigger question is should we create a smallcase following this theme? Hit reply on the email or write to us on social media if you think so. We are listening.