After delivering benchmark-beating returns in 2023 and 2024, manufacturing-themed mutual funds slipped into underperformance in 2025. While the Nifty India Manufacturing Total Return Index (TRI) gained 12.3 per cent during the year, actively managed manufacturing funds delivered an average return of just 2.6 per cent. Every fund in the category lagged the benchmark, with returns ranging from a high of 9 per cent to a low of minus 6 per cent. ICICI Prudential Manufacturing Fund topped the charts with a 9 per cent return, followed by Kotak Manufacturing Fund at 7.5 per cent, while Quant Manufacturing Fund (-6.1 per cent) and Invesco India Manufacturing Fund (-6 per cent) were the bottom performers.
Currently, 12 of the 20 manufacturing funds are actively managed, while the rest are passive. These funds focus on companies positioned to benefit from the growth of manufacturing in India. Fund managers bet on sectors such as automobiles and auto ancillaries, chemicals, pharmaceuticals, capital goods and engineering, food and beverages, textiles, consumer durables, building materials, defence and aerospace, and industrials.
Lower large-cap exposure hurts
One of the main reasons for the underperformance of active manufacturing funds was their relatively higher allocation to mid- and small-cap stocks compared with the Nifty Manufacturing index. Reflecting broader market trends, large-cap manufacturing stocks performed strongly in 2025, while small-cap names delivered suboptimal or negative returns, dragging down fund performance. As of November 2025, the Nifty Manufacturing index had a large-, mid- and small-cap allocation of 73 per cent, 26 per cent and 2 per cent, respectively. In contrast, active manufacturing funds held large-cap exposure ranging from 18 per cent to 56 per cent. Quant Manufacturing Fund, the worst performer in 2025, had the lowest large-cap allocation. In comparison, top performers such as ICICI Prudential, Kotak, HDFC and Baroda BNP Paribas Manufacturing Funds held large-cap allocations in the 44–50 per cent range.
Sectors that worked
Automobiles, metals, power, capital goods and defence manufacturing were the key contributors in 2025. In automobiles, Maruti Suzuki and Mahindra & Mahindra led gains, supported by GST-led consumption optimism, easing supply-chain pressures and improving export sentiment. In metals, Hindalco Industries, Tata Steel and Vedanta benefited from firm commodity prices and improved profitability. Within capital goods, Cummins India stood out, while TD Power Systems delivered outsized gains in electrical equipment despite being a small-cap stock. Adani Power supported returns from the power segment, and defence stocks, led by Bharat Electronics, added to performance on strong order inflows.
What hurt returns
Small-cap stocks were the biggest detractors for manufacturing funds, particularly in pharmaceuticals, industrial manufacturing, auto components and consumer durables. Several stocks posted steep double-digit losses despite meaningful portfolio weights.
The pharmaceutical segment was a major drag. Sun Pharma (-9 per cent) weighed on returns due to its large allocation, while small-cap names such as Piramal Pharma (-35 per cent), Solara Active Pharma Sciences (-17 per cent) and Shilpa Medicare (-21 per cent) reflected weak pricing power and regulatory pressures.
Industrial manufacturing was another weak pocket. Stocks such as Praj Industries (-61 per cent), Cyient DLM (-38 per cent) and LMW (-15 per cent) saw sharp corrections. Small-cap auto component players, including Sona BLW Precision Forgings (-19 per cent) and Tube Investments of India (-27 per cent), further dragged returns. Consumer durables also underperformed, with Voltas (-24 per cent), Blue Star (-19 per cent) and Cello World (-28 per cent) facing demand softness and valuation compression.
How winners and laggards fared
ICICI Prudential Manufacturing Fund, the top performer in 2025, benefited largely from its pronounced underweight to FMCG and pharmaceutical stocks, which helped it withstand the broader correction. The fund also had notable allocations to large- and mid-cap stocks across automobiles (Maruti Suzuki and Eicher Motors), metals (National Aluminium Company and Hindalco Industries), and consumer durables (Titan Company and Asian Paints). Currently, the fund is overweight in capital goods, agrochemicals and cement, while remaining underweight in defence.
Kotak Manufacturing Fund benefited mainly from its exposure to large-cap automobile, metal and defence stocks. In contrast, pharma, capital goods and consumer durables emerged as the biggest sectoral drags for the fund. Over the last three months, the fund increased its allocation to Britannia Industries, TVS Motor Company, Maruti Suzuki India, and The India Cements.
Quant Manufacturing Fund was the bottom performer in 2025. Its was dragged down mainly by concentrated exposure to small-cap cyclicals, led by chemicals and petrochemicals, where stocks such as Aarti Industries, BASF India and Laxmi Organic Industries posted steep losses. Fertilisers and agrochemicals, pharmaceuticals, and consumer-facing stocks such as ITC and Bata India also weighed on returns. Sharp corrections in textiles, retail and telecom further compounded the downside, offsetting gains from large-cap industrial, energy and defence holdings.
What should investors do?
Investors should remember that sectoral and thematic funds are cyclical in nature and inherently risky, as they can go through prolonged phases of underperformance. The manufacturing theme delivered suboptimal returns between 2019 and 2022, strong performance in 2023 and 2024, and turned into a mediocre performer in 2025.
That said, over the long term, the manufacturing theme has delivered reasonable returns. Ten-year rolling return analysis based on the past 20 years shows that the Nifty India Manufacturing TRI delivered a compounded annualised return of 12.7 per cent, marginally higher than the Nifty 500 TRI’s 12.5 per cent.
Most manufacturing-focused schemes have a short track record of less than three years and are yet to prove their consistency. High-risk investors with a good understanding of equity market cycles may consider allocating a small portion of their portfolio to top-performing manufacturing funds including ICICI Prudential Manufacturing and Kotak Manufacturing Fund, with a minimum investment horizon of seven years or longer.
Published on January 10, 2026