By Swapnil KarkareIt’s February, and summer has officially hit Mumbai. Not that it's ever cold here - I have a drawer full of sweaters that I barely use. Sometimes in December I see a fellow Mumbaiker optimistically wearing their underused woolens, but let's not fool ourselves.
On the bright side, as the days warm up, I can finally indulge in ice cream. Chocolate’s my go-to flavour. But the tough part is deciding between choco chips and Belgian dark chocolate.
But why do I have to choose, really? It doesn't have to be 'either-or'; it can be 'and'. That’s what Minister Ashwini Vaishnaw has been saying for India’s growth path: not manufacturing or services, but both. Multiple paths can rapidly grow India's GDP, just as multiple ice-cream scoops can grow my waistline.
Bloomberg estimates that India can be the GDP growth leader globally by 2028, the way China used to be in the past two decades. WEF President Børge Brende expects India to contribute to 20% of global growth in the coming years, from 15% currently.
In this week's Analyticks,
Recipe for growth: India is still missing key pieces as we try to boost the economy
Screener: Exporters outperforming Nifty with growth in revenue and profit
India's recipe for growth is missing high-end manufacturing
A country's growth usually comes with rising complexity. Countries start with simple, low-cost products like clothes, shoes, and commodities. Then they move up to high-tech goods like electronics, electric cars and aircraft, plus advanced services like chip designing, R&D, and AI. They build on their capabilities over time, to move into specialized sectors.
A good example of how this complexity works is Finland's growth path. Finland historically had a lot of tree cover, so over time they became good at building machines that cut trees. Finnish manufacturers soon developed automated cutting machines, and then became better at making automated machines across different industries. That skill over time, led to Nokia.
The first Nokia factory was originally a wood pulp plant.
Similarly China moved from making cheap toys and electronics to becoming a leader in electric cars. South Korea became a global electronics giant, while India’s IT sector grew from call centres to a global tech powerhouse.
To understand this better, economists use something called the Revealed Comparative Advantage (RCA) index — a fancy way of saying, “What has a country become really good at making and exporting?” If the score for a product is greater than 1, it means the country exports more of that product than the world average, indicating a comparative advantage, and vice versa.
Where does China score high in 'comparative advantage'?
By 1999, China already had a strong manufacturing base, excelling in primary (food, beverages, and minerals), low-tech (leather, textile, glassware, furniture, and jewellery) and high-tech products (advanced machines, pharma products and radioactive materials). By 2023, it had shifted from low-value sectors and now dominates high-tech industries.
India's move from low to medium specialization
Two decades ago, India had a competitive edge in primary, resource-based (food processing, rubber, wood, and cement), and low-tech industries. In 2023, its scores for these sectors have declined, but remain above 1. But India is getting better at producing medium (auto and auto componenets, synthetic fibers, and appliances) and high-tech products. But scores for the higher-end sectors are still below 1 - we are lagging the global average here.
The trend shows that India is still great at making things like clothes, shoes, and toys. But we haven't yet moved into more advanced manufacturing like electronics and biotechnology.
Electronics: From importer to exporter
Not long ago, India relied on imports for most electronics. Today, it’s becoming an export leader in this space. Electronics exports jumped from $4.5 billion in FY15 to $28.5 billion in FY24 – a stunning 23% CAGR. The secret sauce? A blend of tax cuts, production incentives, and capital support.
Last year, India registered a 40% increase in mobile phone exports, while China and Vietnam saw declines. India captured nearly 50% of China and Vietnam’s lost mobile exports — a sign of its growing dominance.
The smartphone production-linked incentive (PLI) scheme played an important role. Giants like Apple, Xiaomi, and Samsung ramped up production in India, with Apple doubling its exports from India. Today, iPhones make up 65% of India’s mobile exports. Dixon Technologies, a key player in PLI, expanded its workforce from 9,000 before the pandemic to 26,000 today, manufacturing products for Motorola, HP, Lenovo, LG, and more.
“What we’re used to seeing in China is these large mega factories, where thousands of people are working on one campus and live on that campus; we are also trying to do that in India”, says Sunil Vachani, Dixon’s chairman.
So India has entered the electronics manufacturing space -- but we have yet to move up the value chain, from assembly to design.
India’s rise in global pharma
India is the world's largest vaccine maker, producing 60% of global vaccines, and is making waves in biotech research and development. A few companies are leading this front. Zydus for instance, has beat global giants like Novartis and Roche in testing NLP3R inhibitors for amyotrophic lateral sclerosis (ALS) disease. Glenmark’s ISB 2001, a blood cancer drug, could be a cheaper alternative to J&J’s Darzalex, if approved.
The government has targeted making this a $300 billion industry by 2030 from $130 billion today, through policies like the PLI, National Biotechnology Development Strategy 2020-2025 and the Bio-E3.
But there’s also a political angle to this story.
The US Biosecure Act, which aims to ban federal agencies from purchasing Chinese drugs, is awaiting a decision from the Trump administration. Even though the Act hasn't yet passed the Senate, global companies are already moving their supply chains away from China. This shift presents a significant opportunity for Indian pharmaceutical companies, which already provide 40-50% of generic drugs in the US.
Not every industry is a winner
The Indian government has been building support for many promising industries. But today’s factories are quite different from those in the ‘80s and ‘90s. They have more automated machines and robots. The Economist notes that this makes it harder for poor countries to compete in manufacturing. It also makes it harder for governments to know which industries to help.
When venturing into new sectors where it lacks experience, India must start small and choose carefully the areas it builds expertise in. Some may not pay off at all. Take semiconductors, for example. India has ambitious manufacturing plans, but most proposed facilities will only assemble chips (low value), not design them (high value). It is also a late entrant to a semiconductor space where many countries are jockeying for supremacy.
The manufacturing+services strategy gets a boost from GCCs
The good news? India’s services sector is evolving alongside its manufacturing efforts.India is no longer housing just basic call centres; it's becoming a global hub for Global Capability Centers (GCCs). GCCs work as overseas offices of big companies. They handle tasks like tech development, research, and customer service.
India is home to 1,700 GCCs, 17% of the global total. This number could rise to 2,200+ in the next few years. Consulting firm Zinnov’s CEO Pari Natarajan, calls Indian GCCs "the nerve centres of global tech advancement".
GCCs earned over $64 billion in FY24, up from $46 billion in FY23. They are creating a wealth of high-paying, specialised jobs and could generate over 4 lakh jobs this year. Companies are even tapping into smaller cities like Visakhapatnam, Coimbatore, Jaipur, Vadodara, Kochi, and Chandigarh to find talent.
India faces the difficult challenge of finding jobs quickly for millions of low-skilled and high-skilled workers, which can only be answered with a manufacturing and services combo. The one advantage India has in a difficult global environment of tariffs and competition, is hostility in the US and EU to a rising China. Politics+economics, combined with manufacturing+services, may be India's real advantage in the coming years.
Screener: Exporters outperforming the Nifty with growth in revenue and profit
Auto & chemical stocks outperform Nifty 50 after strong profit growth in Q3FY25
As we near the end of the results season, we look at exporters with the best performance in Q3FY25. This screener shows stocks outperforming the Nifty 50 in month change with YoY growth in revenue and net profit.
The screener is dominated by stocks from the chemicals & petrochemicals, automobiles & auto components, pharmaceuticals & biotechnology, and textiles apparels & accessories sectors. Major stocks that feature in the screener are UPL, Maruti Suzuki, TVS Motor, Sumitomo Chemical India, Divi’s Laboratories, Epigral, Garware Technical Fibres, and Mahindra & Mahindra.
UPL surged by 11.3% over the past month, outperforming the Nifty 50 index by 12.8 percentage points after its net profit and revenue grew by 168% YoY and 10.3% YoY, respectively, in Q3FY25. This helped the agrochemicals company’s net profit and revenue to beat Forecaster estimates by 138.8% and 1.2%, respectively. Net profit surged on the back of lower raw materials, finance, and exchange differences on trade receivables. On the other hand, sales growth and rising prices of its products helped the company’s revenue increase.
Maruti Suzuki also shows up in the screener after its price rose 9.4% over the past month, outperforming the Nifty 50 by 11 percentage points. This comes in response to the cars & utility vehicles manufacturer’s net profit and revenue growing by 16.2% YoY and 15.4% YoY during Q3FY25, helping to surpass Forecaster estimates by 2.1% and 2.9%, respectively. A reduction in inventory costs and a deferred tax return during the quarter helped profit increase, while a recovery in sales in the rural market helped with revenue growth.
You can find some popular screeners here.
Signing off this week,
The Trendlyne Team
