Manufacturing Sector: Machined for Growth

Despite the worries revolving around the geopolitical conflicts and the threat of the re-emergence of the pandemic, Bhavya Rathod and Armaan Madhani elucidate how the Indian manufacturing sector is poised to take a big leap forward, propelled mainly by the government's initiatives and strategies like 'Make in India' the PLI scheme. This report highlights how this growth story will take shape

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The year 2022 will be remembered primarily for the outperformance of banking stocks, which demonstrated their sheer strength, with PSU banks leading the rally. Nifty Bank index increased by more than 21 per cent, compared to a 4.5 per cent increase in Nifty index, with Nifty PSU Bank index increasing by more than 61 per cent. This massive rally in banking stocks is largely due to an increase in credit growth, which is at its highest level in over a decade - 15 per cent year on year.

Fuelled by robust credit demand in 2021-22 and so far in 2022-23, the consolidated balance-sheets of India's scheduled commercial banks (SCBs) registered double-digit growth in 2021-22 after a seven-year hiatus. This was led by credit growth, which accelerated to a ten-year high in the first half of this fiscal year ending March 2023. As for the manufacturing sector, the December manufacturing PMI pointed to robust growth in the health of the sector, which was the best since October 2020. Despite slowing growth in global economy coupled with higher inflation and economic uncertainty, the Indian economy remained resilient with manufacturers scaling up production at the end of 2022.

Slowly and steadily as the economy picked up pace in 2022, all critical pieces fell in the right place for banking sector which resulted in massive outperformance in banking stocks across the board. Now entering into 2023, a similar pattern seems to be emerging for the manufacturing sector. Let us delve deep to gain better understanding of recent trends emerging in the sector, growth drivers at play and a few key sectors that investors should focus in this year.

Overview of India's Manufacturing Sector

As per Indian Brand Equity Foundation (IBEF), India's gross domestic product (GDP) at current prices was USD 694.93 billion in the first quarter of FY22, as per provisional estimates.