Nifty Manufacturing index at all-time high on government capex, premium auto sales

The Nifty Manufacturing index climbed to 13,080 intraday. It has been making new all-time highs for the past 5 sessions in a row.

The Nifty Manufacturing index hit a new all-time high on April 30, topping 13,000 points for the first time ever, propelled by strong order inflows on the back of government capex in the last two years.

The significant outperformance of the automobile sector, helped by premiumisation of sales, also fuelled the index. The automobile sector has the highest weightage in the manufacturing index.

The Nifty Manufacturing index climbed to 13,080 intraday. It has reached new all-time highs for the past five sessions.

The manufacturing index has gained 57 percent in the last 12 months, and 18 percent since January, outperforming the Nifty, which gave 26 percent and 4.5 percent returns, respectively.

Guarav Bissa, Vice President at Incred Capital said the manufacturing index has seen a fresh swing breakout above 12,700, and can rise to 13,150 in the coming days. “The Nifty India Manufacturing index has been in a strong uptrend on the daily charts with consistent formation of higher highs and higher lows … It is also trading in a rising channel pattern with upper band resistance seen at the 13,150-13,200 level,” he said.

Automobiles and auto components make up 31.14 percent of the manufacturing index, according to NSE data till March 2024. The Capital Goods sector contributes 20.33 percent, while Healthcare adds 15.08 percent. Oil, Gas and Consumable Fuels have 9 percent weightage.

Auto stocks in fast lane, capital goods firms’ order book swells
Auto stocks have raced ahead on the back of premiumisation, which led to rerating of the sector. The Maruti Suzuki stock has risen 49 percent in the last 12 months. Tata Motors has gained over 111 percent.

On the other hand, capital goods stocks have been powered by a substantial order intake, which has been fueled by government capex in the last two years. “The positive environment for the capital goods companies has been due to the policy environment in the last 3-4 years, which gave priority to many sectors like defence, power, EMS (electronics manufacturing services) and railways,” said Amit Anwani, Research Analyst at Prabhudas Lilladher.

“In terms of stock price, the capital goods companies outperformed in the last year. They were followed by auto, metals, and then consumption, where select Oil Marketing Companies (OMC) have done well,” said Nitin Arora, Fund Manager at Axis Mutual Fund.

Nitin Arora added that the healthcare sector, which also saw a rerating due to 15-18 percent earnings growth and decent US pricing power, contributed to the outperformance.Wait for private sector capex to catch up for a sustained upmove from here
While experts say the sector is poised to continue its outperformance, they warned that the valuations of the companies are very high, and that it is better to wait for a correction or pick-up in private capex to ensure the sector is in a multi-year cycle.

“The valuations are very expensive. So the sector warrants a correction. The valuations are now close to what they would be during the peak of an upcycle. Investors should wait before entering the sector,” said Anwani.

Added Arora, “If private capex starts to come in, then it becomes a multi-year-cycle story for the sector. Then the valuations (will) appear more reasonable.”