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After weeks of tariff-related tensions sparked by the United States, a lull followed the announcement of a 90-day negotiation window by President Donald Trump. While markets reacted with volatility, attention soon turned to the implications for Indian and global manufacturing.
“The global tariff war has brought renewed focus on the manufacturing sector. India has taken a prudent approach by pursuing bilateral trade negotiations rather than escalating tensions, unlike some other nations. This can potentially benefit Indian manufacturers, especially in sectors where we are net exporters to the US, and may even lead to market share gains. However, the final impact will depend on the outcome of the ongoing trade talks,” says Lalit Kumar, fund manager, ICICI Prudential Mutual Fund.
There are 12 actively managed manufacturing funds, which have total assets under management (AUM) of ₹32,999 crore. Four passive funds also exist; they together have an AUM of ₹473 crore.
Investor sentiment stabilises
Indian investors’ concerns about the impact on export-focused manufacturers and thematic manufacturing funds have eased as bilateral talks continue. These funds invest at least 80 per cent of their assets in manufacturing companies across market capitalisations.
Policy tailwinds
Government programmes such as the Production Linked Incentive (PLI) scheme, export promotion and import substitution, and global companies adopting a China Plus One strategy, are supporting domestic manufacturing.
“Just as the US is looking towards its self-interest, India has an equal incentive to reduce its import dependence and achieve a better balance on its manufacturing trade deficits. The manufacturing theme will still play out with growth in manufacturing likely to be ahead of its growth in gross domestic product, given the government’s thrust on stepping up the share of manufacturing in GDP. The domestic story is, therefore, likely to remain strong,” says Jitendra Sriram, senior fund manager, Baroda BNP Paribas Mutual Fund.
Thematic risks
Being thematic in nature, manufacturing funds carry higher risk. “Manufacturing being a thematic bet can be risky and volatile. The manufacturing sector’s performance can be affected by various economic and political factors,” says Parul Maheshwari, certified financial planner.
Investors should assess their asset allocation and rebalance it if overexposed to equities in general and thematic funds in particular. “Sectoral/thematic funds, by nature, have a higher risk profile than broad-based funds. If someone has lower risk tolerance, they should evaluate the magnitude and appropriateness of exposure to sectoral/ thematic funds,” says Sriram.
Barring a few exceptions, most manufacturing funds have a short track record.
Long-term commitment essential
Short-term investors seeking quick gains may be disappointed, as the trade-related disputes may take a while to be resolved. Moreover, Indian manufacturing companies are adapting to changing conditions. A long-term horizon is hence crucial. “Investors who have an appetite for risk and are ready to wait for seven years could opt for the systematic investment plan route. They should restrict overall exposure to 5 per cent of the portfolio. Conservative investors or first-time investors should stay away and invest in largecap oriented diversified equity mutual funds only,” says Maheshwari.
