Manufacturing-related stocks have more headroom left, say analysts

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Manufacturing-related stocks may not be fully reflecting the stellar growth in the economy as seen in the recent gross domestic product (GDP) numbers for July-September period of fiscal 2025-26 (FY26) at 8.2 per cent, said analysts. 

 

The GDP growth was led by the manufacturing sector, which grew 9.1 per cent during the period under review (7.7 per cent in Q1) despite US tariff-related concerns.

 

“A lot of export oriented units (EOUs) may not have performed to their full capacity given the US tariff overhang. A large number of such units would be in the mid-and small-cap (SMID) space. So to that extent, the performance of related stocks is not reflecting the growth potential. Once there is clarity on tariffs, exports are likely to pick up, which can then boost the stock performance as well, especially in the SMID universe,” said G Chokkalingam, founder and head of research at Equinomics Research.

 

At the bourses, meanwhile, Nifty India Manufacturing index, which has outperformed the market by surging 26 per cent in the past nine months after a strong uptick in industrial growth. The benchmark Nifty 50 was up 18.4 per cent during the same period, data shows.

 

The Nifty India Manufacturing Index aims to track the performance of the companies selected from the combined universe of Nifty 100, Nifty Midcap 150 and Nifty Smallcap 50 index based on 6 month average free-float market capitalisation within the eligible basic industries that broadly represent the manufacturing sector.

 

Automobiles & auto components accounted 27.04 per cent of the index distribution, followed by capital goods (19.79 per cent), healthcare (17.09 per cent), metals & mining (13.66 per cent), oil gas & consumable fuels (9.39 per cent) and chemicals (7.37 per cent).

 

In the past two months, the manufacturing index has rallied 8.2 per cent, as compared to the 5.9 cent rise in the benchmark index. In the second quarter (July to September) of the current fiscal year (Q2), Nifty India Manufacturing index had gained 1.5 per cent, as against 3.5 per cent negative return recorded by Nifty 50.

 

Outstanding show

 

Among stocks, out of 74 stocks from the Nifty India Manufacturing index, 31 stocks have outperformed by recording over 26 per cent returns in the past nine months. 

 

Public sector enterprises (PSEs) like Bharat Electronics, Bharat Heavy Electricals (BHEL), Solar Industries and Bharat Petroleum Corporation Limited (BPCL) were up between 50 per cent and 67 per cent. 

 

TVS Motor Company, Uno Minda, Ashok Leyland, Eicher Motors, Samvardhana Motherson International, Mahindra & Mahindra (M&M) and MRF from the automobiles sector have rallied in the range of 45 per cent to 60 per cent.

 

Reliance Industries (31 per cent), Hindalco Industries (27 per cent), Maruti Suzuki India (33 per cent) and Vedanta (33 per cent) are among other notable stocks that outperformed the manufacturing index.

 

"After a long time, the manufacturing sector has been at the forefront of GDP growth. I think this is more to do with hope of higher consumption across auto, fast moving consumer goods (FMCG) and the light engineering segments in the backdrop of goods and services tax (GST) rate rejig. Manufacturing-related stocks could reflect this optimism more in the December 2025 quarter as the GST cut-related benefits become more visible in companies' operational and financial performance," said Ambareesh Baliga, an independent market analyst.