Launches within the sectoral/thematic class of funds normally come up when a theme is scorching. For lengthy, UTI Transportation and Logistics (T&L) was the one energetic fund targeted on auto and allied sectors. However a minimum of 4 extra (from Aditya Birla Solar Life, ICICI Pru, HDFC and Bandhan MFs) got here up in fast succession within the final two years, coinciding with the upturn in auto gross sales following the Covid droop. To date, in 2024 and within the earlier two calendar years (2022 and 2023), the Nifty T&L TRI (Complete Returns Index) has outperformed the Nifty and Nifty 500 by 6 to 26 share factors. Given the tailwinds seen to this point, Kotak T&L is making an attempt to hop on to this bandwagon and strike when the iron is scorching. The NFO is open until December 9.
Drivers and inventory choice
Bettering street infrastructure, scope for higher penetration given the inhabitants dimension, and growing affordability aiding in premiumisation are long-term drivers for auto shares. Together with this, the push for electrical autos and the necessity to develop the encompassing eco-system are creating a brand new set of alternatives for buyers. The federal government’s efforts to help sooner motion of products and decrease the price of transport by the organising of devoted freight corridors, multi modal logistics parks, initiatives akin to GATI Shakti, Bharatmala and Sagarmala and so forth, present runway for progress within the logistics area. The rise of e-commerce gives provides good scope too. The fund can be a experience on all these structural drivers.
The Nifty T&L index is the benchmark for the fund. No prizes for guessing the highest holdings within the index: listed large-cap auto producers Mahindra & Mahindra (14.5 per cent), Tata Motors (10.5 per cent), Maruti Suzuki (8.7 per cent) and Bajaj Auto (6.5 per cent). On the logistics aspect, Zomato (8.9 per cent) and Adani Ports (6 per cent) are the highest weights within the index. Contemplating that that is an energetic fund, with restricted large-cap shares each within the auto and within the logistics area, the theme itself makes it lean in direction of mid and small-cap shares. As per the NFO presentation, the inventory universe for the theme consists of solely 10 large-caps however 26 mid-cap and 278 small-cap shares. All present T&L funds maintain between 60-74 per cent in auto and auto ancillary shares making the theme extra depending on the fortunes of the auto sector. Given the narrower pool of shares in logistics, the holding sample of the Kotak fund could possibly be no totally different.
Cyclical play
Trying by the rear-view mirror, home auto gross sales have been on a purple patch within the final 2-3 fiscals. However the cyclical nature of the trade is starting to indicate up. Within the present fiscal, solely two-wheelers gross sales, which picked up late, continues to develop in double-digits year-on-year. Passenger automobile gross sales progress is at greatest flat, whereas business automobile gross sales are already exhibiting a contraction. That is reflecting within the inventory actions in these segments. From the September-end market peak till now, whereas bellwether Nifty has misplaced about 7-8 per cent, the autumn within the Nifty T&L and the Nifty Auto indices is almost double that. Frontline auto shares akin to Tata Motors, Maruti Suzuki, Bajaj Auto, Hero MotoCorp and TVS are down 18-32 per cent from their respective peaks. Having come up solely throughout the post-Covid upcycle, the comparatively newer funds are exhibiting good one-year returns at 30-40 per cent. Nonetheless, a more in-depth have a look at UTI T&L fund which has a observe document of greater than 10 years exhibits that in unhealthy years for the auto gross sales (2018- 2021 being examples), the fund has achieved worse than the broader markets represented by the BSE 500 (information from Worth Analysis). Present funds too are taking part in their playing cards fastidiously. The UTI fund holds solely 64 per cent within the auto and auto elements area in its newest October portfolio, in comparison with 80 per cent a 12 months in the past. The HDFC fund has steadily trimmed it to 69 per cent now from 77 per cent in April 2024 and the ABSL fund, to 60 per cent from 68 per cent in June 2024.
As all the time, timing the entry and exit is vital in sectoral/thematic funds. These shopping for now should be ready to undergo the cyclical downturn earlier than the upturn begins.
