What to expect from the manufacturing sector under Modi 3.0: Here’s what Anthony Heredia of Mahindra Manulife has to say

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With the objective of tapping into the manufacturing growth in the country, Mahindra Manulife Mutual Fund recently launched an open-ended Mahindra Manulife Manufacturing Fund. The NFO, which was opened for subscription on May 31, closes on June 14. In an interaction with Business Today, Anthony Heredia, Managing Director and Chief Executive Officer, Mahindra Manulife, talks about the economy, what to expect from the manufacturing sector under Modi 3.0, and more. Edited excerpts:

BT: How much does the manufacturing sector contribute to India’s GDP? How do you see this going ahead?

Anthony Heredia: The current contribution of manufacturing to total GDP is around 17%. Our understanding is that there is a target to increase this to 25% in the next 3–5 years, enabled by various policy initiatives like the production-linked incentives (PLI) scheme and Atmanirbhar Bharat that aim to substitute imports as well as promote exports. Also, there is an added focus on improving enablers for manufacturing; for example, improving logistics and infrastructure via the Gatishakti mission, multi-modal connectivity, etc. We already have low corporate tax rates for new manufacturing units, which is a powerful enabler for investments in this space.

BT: Prime Minister Narendra Modi retained power for the third consecutive term. What does Modi 3.O mean for the manufacturing sector?

Anthony Heredia: We believe the continuity in policymaking is likely to have a positive impact on the manufacturing sector. The government has been an active supporter of “Make in India, make for the world” at every forum, globally as well as in India. We expect a more conducive environment for the push for manufacturing.

BT: Could you explain the rationale behind launching a manufacturing fund at this time? How significant do you believe the growth potential of this theme is?

Anthony Heredia: Over the next 3–7 years, the contribution of manufacturing is likely to increase as a percentage of GDP, along with steady growth in GDP. So the overall growth of the manufacturing sector will be strong. When the economy is likely to expand over the next few years, coupled with an increase in manufacturing contributions, the overall growth in real GDP could be faster than in the past decade. As the manufacturing sector is likely to play an important role in this GDP growth, the growth trajectory for companies in this space is likely to be strong.

BT: How is Mahindra Manulife’s manufacturing fund different from others?

Anthony Heredia: As a fund construct, in our current portfolio, we are already overweight on companies that fall under the ambit of manufacturing. Hence, manufacturing as a theme is being indirectly reflected in our holdings of diversified portfolios. With this fund, we are trying to emphasise our long term belief in this theme by launching a dedicated thematic fund. This will help us leverage the active coverage of this theme that we already have in place.

BT: How will you pick stocks for the manufacturing fund? Which stocks are holding the most weight at present?

Anthony Heredia: We already have active coverage of stocks under this theme, and this is reflected across our various diversified portfolios. At present, we are positive on capital goods, commodities, autos, and consumption, among others.

BT: Why should investors opt for a manufacturing fund when other categories, such as flexicap, offer similar benefits?

Anthony Heredia: The manufacturing fund offers the advantage of a focused approach to play on the incrementally strong growth expected in manufacturing in the next 3–7 years versus other sectors. The flexicap category will have a more  diversified approach to portfolio construction as it also covers the services sector.

BT: What are your expectations from the forthcoming Budget?

Anthony Heredia: The first budget of any government is always tracked by markets, as it lays down key priorities and the economic agenda for the next five years. Given that we have continuity, we can expect more policy initiatives related to manufacturing, given the underlying view that it remains a key engine for future economic growth.

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