India’s renewed push to replace critical imports with locally manufactured products is creating a new cohort of stock market winners.
The beneficiaries of Prime Minister Narendra Modi’s import substitution drive range from producers of fertilizers and automotive heat shields to motor magnets. Fund managers are investing in these companies, betting they will benefit from India’s growth story.
A Bloomberg-compiled basket of 15 stocks linked to import substitution has rallied more than 20% since the start of the Middle East conflict, outperforming the benchmark NSE Nifty 50 Index, which has dropped about 2%. The rally stands out as the basket has become a haven for investors seeking shelter from broader market volatility.
“Import substitution can be decadal opportunity,” said Pawan Bharaddia, co-founder and chief investment officer at Equitree Capital. Companies replacing imported products enjoy a “blue-sky scenario” because they are targeting large, established markets historically served by foreign suppliers, he said.
Modi’s administration is doubling down on its “Make in India” initiative, first launched more than a decade ago, to reduce import dependence after the nation’s merchandise trade deficit ballooned to $333 billion during the financial year ending March. The drive has become more important as New Delhi relies on overseas suppliers for a wide range of strategic and industrial goods. That leaves the economy vulnerable to supply disruptions, widens the trade deficit and puts pressure on the rupee.
