EMS companies can take off on atmanirbhar push

EMS or electronic manufacturing services cos have a lot of scope for import substitution. In three to five years, India’s position is quite bright from an emerging market perspective says Rana B Gupta

ETMarkets.com
We see quite a long growth runway in electronics manufacturing, in consumer durables, white goods manufacturing or their ancillaries, says Rana B Gupta, MD, Manulife Asset. There is also opportunity in chemical as well as light engineering companies and some of the auto ancillary companies that operate out of India.

On atmanirbhar India theme
This is pretty much in line with our manufacturing theme. Sectors which are in the take-off stage would be electronics, consumer durables and the chemical space. India used to import a lot in these sectors and there is an opportunity for import substitution, for getting domestic production up and as volume builds and fixed costs fall, there is also opportunity to serve export markets.


We see quite a long growth runway in electronics manufacturing, in consumer durables, white goods manufacturing or their ancillaries. You can call these EMS companies (electronic manufacturing services) companies. We see this opportunity in chemical companies as well as light engineering companies and some of the auto ancillary companies that operate out of India.

On US elections & other risks
There is the risk of a second wave of Coronavirus spread. However, our view is that even if the second wave happens, there will be no national lockdown. It will be managed through more regional lockdowns, better therapeutic treatments, better awareness and a whole host of other things.

Second is the US elections. Our view is that as long as the election gives a decisive verdict, whether it is for President Trump or for Biden to become president, there will be a risk-on sentiment. A contested election will hamper the risk sentiment but our base case is that most likely we will have a decisive outcome and that is something which will be still constructive for the risk-on sentiment for the emerging markets.

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Whether 12-15% CAGR from a basket of stocks is conceivable
India’s position in three to five years, from an emerging market perspective is quite bright because people will come back to emerging markets. There are larger emerging markets, there are north Asia markets and then there is the India market. Any investor will look at that. On top of that, India is getting a large amount foreign direct investments in various sectors. The two themes of digital India and manufacturing in India have very long growth runways and we continue to expect foreign investments -- be it FDI or FPI investments - to pour in into these two segments.

Now also think how these two segments impact the economy. Formalisation pushes digitisation and then the informal companies realise that if they do not digitise they will lose out and so digitisation in turn pushes formalisation.

In the case of manufacturing it creates well paid or more organised sectoral jobs and ultimately when the government gets more revenue in the form of tax, hopefully they will be able to build a better infrastructure which will attract more investments. This is the virtuous cycle that we are thinking will play out and if that is the case, as an emerging market, the prospect for three to five years looks very bright.
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