WHO IS NEXT AFTER APPLE COMES TO INDIA?

Many people in India disbelieve that the Indian GDP will grow strongly compared to the U.S and the EU and particularly when we are hearing that recession is the nearby guest. But the truth is that Indian macro factors have changed dramatically in the last 4 to 5 years and most importantly in the previous 2 years of Covid.  The target of manufacturing exports to reach $1 trillion by FY28 is not ambitious and is more aligned with the potential compared to global issues. Supply chain diversification and affordability factors have played the dice. Today Japan is not looking toward China but instead towards India for its supply of goods.  The shutdown of manufacturing due to high energy costs in European countries leads to an increase in the import of goods from India and not from any other country.

India's corporate profit to GDP is going to significantly rise in the coming years riding not only on consumption domestically driven but also on the export of manufacturing.  India is just in the position of china during the period of 2001-07.

Recession and slowdown have now negligible impact on the Indian economy currently as compared to a higher proportion 10 years back. Historically manufacturing in India had grown between 5% to 10% whereas in the last 2 years during covid it went up by 15%. India has reached $418 billion in manufacturing exports in the fiscal year 2022 (FY22). It is not only supply chain diversification that leads to the growth of opportunities for Indian manufacturing but also due to other key macro factors. The 40% growth in manufacturing export to $418bn from $328bn during the pre-pandemic phase leads to a significant eye-opener for India’s test of capacity utilization.

One of the key factors which we all ignored while discussing Indian manufacturing and one of the key global reasons for the same is that in 2021, CO2 emissions in China were 6% (almost 500 metric tons) above 2019 levels— while India’s emissions were 1.4% (30 metric tons) above 2019 levels, helping companies shift to India to comply with their environmental, safety, and health standards.  This is one of the key areas where Indian manufacturing will attract FDI investments and we will find significant PE and VC funds coming up to set up manufacturing.

Those who are thinking that private sector CAPEX will not come up so early well for them the best example is OLA EV. Today the investment is not restricted to the hands of well-established business houses but even a plant of OLA for the EV segment can challenge and bring up quick investments in EV.   If we look at the sector-wise we find that 30% to 35%more cost efficiency compared to U.S and EU. 

We find that the gross block of domestic listed entities has grown at a CAGR of 13.9% from FY10 to FY22. PE/VC investments in Indian firms have up 55% since 2019 and hit a record $70 billion in 2021. Between April and June FY22, Indian car makers exported 1,27,115 vehicles, more than double the 43,619 units exported in the same quarter in FY21. In electronics, manufacturers like Samsung, Wistron, and Foxconn are shifting production to India because of strong manufacturing and R&D capabilities, a growing supplier base, and strong policy support.

To achieve the manufacturing exports to $1 trillion by FY28 Indian needs to focus on having a clear export strategy and keeping that in mind we have the PLI in place of $47.8 billion planned over five years, starting in 2021 and this has attracted significant inflows in India. At the same time we have the Free-trade agreements (FTAs), including India-UAE Comprehensive Partnership Agreement (CEPA) and India-Australia Economic Cooperation and Trade Agreement (IndAus ECTA), have been signed with a vision to boost bilateral trade, creating an environment for export growth.

The govt Capex currently will drive the tax collection of India and once the private CAPEX starts pulling up the GST numbers will be around 1.75 lakhs c every month.  The confluence of multiple enablers such as deleveraged corporate balance sheets and healthy profitability, a well-capitalized banking system with an NPA cycle over, rising domestic demand as well as mid-cycle capacity utilization, and interest rates.

The EV segment has already triggered the Capex plans and this value migration concept will play a pivotal role in India’s manufacturing base. The entry of 5G telecom will further push up the smart cities and more interconnected operational models in business trade resulting in more CAPEX, and efficient cost management followed by higher corporate profit to GDP. The government capex like railways, defense, power, and roads are more long-term in nature and are expected to keep driving the Capex program of India for at least a decade.

List of top companies & groups ranked by size of Capex execution plans from FY22 to FY24

 
Growth led by the PLI schemes will show up most in the electronics, pharmaceutical, automotive, advanced chemistry cell (ACC) battery, solar, and white goods (home appliance) sectors, with a cascading multiplier effect on other sectors over the next five years. On the CAPEX side, we find that the current increased export leads to significant utilization and hence new capacities will be required to manage the upcoming demand.

 Indian manufacturing is projected in the next five years to have CAPEX six times higher than last five years.   The capital market will also behave and deliver that kind of return over the next 5 to 10 years.