India poised to become a major 'Manufacturing Hub'

India is poised to overtake China as a global manufacturing hub. Fortune 5000 global companies have shown their preference for India for outsourcing manufacturing over the next 3-4 years. With a host of these global firms setting up manufacturing facilities in India, the manufacturing sector may overtake the services sector as the major contributor to India's GDP in the next 5 years. India with its manufacturing, engineering and technological capabilities offers a conducive environment to qualify as a global manufacturing hub, provided it can overcome the political impasse and getting along with the economic reforms agenda. I am very sure this will start happening in the next 5-6 months.

Currently, India's GDP is dominated by the growth of the services sector, prominent among it being BFSI and IT sectors. But a change in trend is beginning to emerge. Historically it has been proven that a services led economic growth invariably leads to a collapse, as it has happened in the case of Iceland and Portugal. Even the Lehman brothers episode gave a big jolt to the US as a services led economy. Countries with a strong manufacturing base like China and India are likely candidates for a more sustainable economic growth.

What could be the impact of India transforming into a 'Global manufacturing hub' from a 'Services dominated economy'. Our markets will sooner than later accept this reality and re-rate the stocks from various sectors. The future belongs to the real economy rather than the virtual economy. In the emerging scenario investors are advised to focus on accumulating blue chip stocks from the manufacturing sector, and at the same time reducing exposure to service sector stocks like BFSI and IT. The next bull run which is likely to start unfolding in the second half of FY 2011-12, in all probability will be led by the real economy stocks - Domestic and foreign companies having a substantial presence in manufacturing sector. Most stocks from this sector including blue-chips like BHEL, L&T are languishing at their 52 week lows. As the markets are down and likely to remain in a subdued mode for another 3-4 months, investors with an eye on the future can start accumulating the manufacturing sector stocks which include steel, cement sector stocks which will be the indirect beneficiaries of the growth in manufacturing sector.