I believe Europe Plus One is an equally important opportunity for India. Europe is becoming a less competitive manufacturing destination because of an ageing workforce and high energy costs. India can benefit in areas such as aerospace, specialty chemicals, electronics manufacturing and pharma CDMO, he said.
I
Anishaa Kumar
July 20, 2026 / 07:01 IST
Manufacturing-related businesses account for roughly 16-18% of our portfolios across sectors such as pharma CDMO, specialty chemicals, industrial manufacturing and power equipment.
- “Europe Plus One” emerges as key investment theme.
- India benefits from Europe’s manufacturing shift.
- Europe faces aging workforce, high energy costs.
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The global manufacturing narrative has largely revolved around the ‘China Plus One’ strategy as companies diversify supply chains away from China. But another structural shift is quietly taking shape. Europe, weighed down by an ageing workforce, high energy costs and mounting geopolitical uncertainty, is becoming a less competitive manufacturing base, creating fresh opportunities for countries such as India. In an interaction with Moneycontrol, Invesco MF’s Head of Equity Aditya Khemani believes investors are underestimating the significance of this trend. In this interview, he explains why ‘Europe Plus One’ could emerge as an equally important long-term investment theme, where India stands to benefit, why manufacturing remains a structural growth story, and why investors should ignore market noise.
Geopolitical tensions have dominated headlines. How do you look at these developments as a fund manager?
We don’t get distracted by geopolitical events; we see them as opportunities. When negative news dominates headlines, many investors become consumed by developments they cannot control and lose focus on what really matters. Successful investing requires emotional discipline. Volatility is inevitable, but it also creates opportunities to buy quality businesses at attractive valuations. Our focus remains on businesses and long-term fundamentals, not daily headlines.
What gives you confidence about India’s long-term growth story?
India’s biggest structural advantage is its demographics. With a young workforce, India has a natural edge in manufacturing and labour-intensive industries. But demographics alone won’t guarantee success. Better infrastructure, ease of doing business, policy execution and labour availability will determine how quickly manufacturing scales. Converting India’s demographic dividend into manufacturing leadership will require sustained execution.
Which manufacturing themes excite you the most?
China Plus One has become the dominant manufacturing narrative as global companies diversify away from China. India, because of its scale and demographics, is well placed to benefit. But while China Plus One receives most of the attention, I believe Europe Plus One is an equally important opportunity for India. Europe is becoming a less competitive manufacturing destination because of an ageing workforce and high energy costs. India can benefit in areas such as aerospace, specialty chemicals, electronics manufacturing and pharma CDMO.
India cannot replace China overnight because China’s manufacturing ecosystem has evolved over decades. India’s opportunity lies in becoming an important part of diversified global supply chains.
India has signed a series of Free Trade Agreements (FTAs) in recent years. How significant are they for manufacturing?
FTAs are a positive development and can provide a meaningful boost to sectors where India enjoys a competitive advantage. They improve market access, reduce tariff barriers and make Indian exports more competitive. For export-oriented industries, they can certainly accelerate growth. That said, I think their impact is sometimes overstated. FTAs, by themselves, won’t transform India into a global manufacturing hub. Long-term competitiveness will depend far more on execution—building world-class infrastructure, strengthening supply chains, improving logistics and creating a business environment that attracts investment.
The bigger structural opportunity remains manufacturing itself. Themes such as electronics, aerospace, pharma CDMO and specialty chemicals are likely to benefit from global supply chain diversification regardless of individual trade agreements. FTAs can accelerate that process, but they are only one part of a much larger story.
How is your portfolio positioned to benefit from this theme?
Manufacturing-related businesses account for roughly 16-18% of our portfolios across sectors such as pharma CDMO, specialty chemicals, industrial manufacturing and power equipment. We’d like to increase that allocation over time, but we’ll do so selectively because valuations in many manufacturing businesses have become demanding. We don’t build portfolios around benchmark weights. The benchmark is only a reference point. We’d rather own businesses with superior long-term earnings potential, even if they carry a smaller index weight.
What investment themes are you most positive on today? Do you have any contra bets?
Contrarian investing isn’t about buying stocks simply because they’ve fallen. It’s about identifying businesses with long-term earnings potential. Hospitals remain a high-conviction structural theme, while real estate is our genuine contrarian opportunity as organised developers continue to gain market share. We also like aenience-led businesses
Which sectors are you cautious about?
We’re cautious on commodity businesses because long-term earnings are difficult to forecast. We’re also underweight IT services because AI has introduced uncertainty around the sector’s long-term business model. We prefer sectors where earnings visibility is stronger.
Foreign institutional investors (FIIs) have been net sellers for much of the past year. How do you view FII flows?
Foreign ownership in Indian equities has declined significantly over the past five to six years as domestic investors have become a much stronger force. That has fundamentally changed the structure of the market, making India less dependent on foreign capital than it was a decade ago. That said, FII flows still matter. They influence liquidity, the rupee and market sentiment. But I don’t think investors should become overly concerned about them because they’re largely outside our control. Global investors allocate capital across markets, and their decisions are often driven by opportunities elsewhere rather than India-specific factors.
After a period of exceptionally strong earnings growth between 2020 and 2024, India’s earnings cycle moderated and valuations remained elevated. At the same time, themes such as artificial intelligence attracted global capital to other markets. Those factors partly explain why foreign investors turned cautious.
India, however, continues to offer a deep universe of professionally managed companies with strong long-term growth prospects. As earnings recover, I believe foreign investors will return. It’s also worth remembering how large the Indian market has become. Even a small increase in FII allocation can translate into significant capital inflows.
What is your outlook for corporate earnings and the broader market?
The earnings cycle appears to be improving. Even before the recent geopolitical developments, we were beginning to see signs of recovery after a few subdued quarters. The December and March quarters surprised positively, which gives us confidence that the worst of the slowdown may be behind us.
The June quarter could see some pressure from higher commodity prices and geopolitical uncertainty, but I remain constructive on earnings over the next one to three years. Markets are forward-looking—they typically begin pricing in an earnings recovery well before it becomes visible in reported numbers.
That’s why we don’t spend time trying to predict short-term market movements. Our focus remains on identifying businesses with durable competitive advantages and structural growth drivers. Over the long term, earnings growth—not headlines—determines investment returns. Themes such as manufacturing, hospitals and pharma CDMO continue to offer attractive opportunities, and that’s where we remain focused.
Anishaa Kumar
first published: Jul 20, 2026 07:00 am
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