PLI scheme has potential to add 4% to GDP: Emkay Investment Managers

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The government of India’s PLI scheme has the potential to add nearly 4% of GDP p.a. in terms of incremental annual revenues, said Emkay Investment Managers Ltd. (EIML).

PLI scheme aims to provide nearly Rs 2.4 lakh crore worth of incentives over the next 5 years. With the lion’s share going to electronics, auto components, and pharma the incremental capex is likely to go to the less capex-intensive sectors.

The Indian consumer was missing in action for almost 5 years due to multiple reasons like demonetization, GST, COVID, and lack of inflation. The growth in per capita GDP picked up in FY22 and per capita GDP was higher than in FY20 after a dip. The discretionary income of Indian consumers is likely to rise from FY23 to FY27, EIML said.

Indian manufacturing cos on front foot

Manufacturing sector was negatively impacted due to various events like Demonetisation, GST, and COVID. The manufacturing companies reported dismal ROCEs till FY18. Since then the cash ROCEs have improved to almost 20%+ driven by tighter working capital cycles. The cash return on capital employed was the highest in FY22. The current difference between cash ROCE and comparable investment is one of the highest. The attractiveness of cash returns coupled with robust capacity utilization (CU) has put manufacturers on the front foot.

Registration of mfg cos at a 7-year high

Manufacturing companies are adding capacities due to the robust returns. The registration of manufacturing companies has shot up to the highest ever in the last 7 years. The share of manufacturing companies in total registrations of companies is also at almost highest. The number of environmental clearances sought and granted was the highest ever i.e.– 10x of FY15.

China + 1 here to stay?

China is currently facing significant pushback. They are facing disruption in the supply chain due to COVID – manufacturing of goods as well as shipping is affected. The developed nations have imposed anti-dumping duties on a lot of Chinese goods. On the other hand, the INR depreciation vs Yuan is making India more competitive. The key beneficiaries of this are likely to be Auto and Auto Components, Textiles, Chemicals, and capital goods.