Theme based funds are in now. India’s largest mutual fund AMC ICICI Prudential Mutual Fund has launched a manufacturing sector focussed fund. A few days ago, we had reviewed a services fund NFO launched by Sundaram Mutual Fund. Both services and manufacturing are mainstays of the India economy.
The NFO of ICICI Prudential Manufacture in India Fund opens on September 21. The is an open-ended equity scheme which aims to generate long-term capital appreciation by investing in the companies engaged in manufacturing theme. It has been designed as a multi-cap fund. Let’s do a deep-dive.
Manufacture in India
India is the sixth largest economy by nominal GDP and one of the fastest growing economies in terms of GDP growth. A sector-wise breakup of India’s GDP in 2017-18 will show that services account for 53.96%, Industry sector: 31.22% and Agriculture and allied sectors: 14.82%. Manufacturing, part of industry sector contributes around 18% in GDP. The share of manufacturing in India’s GDP has stayed in a narrow range of 14-16% over the last four decades. It recently moved to 18%. The government aims to take it to 25% of GDP by 2025.
Competition from China and other nations
Despite serious attempts to make India a global manufacturing hub, the truth is we have not done that well. Countries like China have taken away manufacturing jobs. To help India achieve her rightful position on the global manufacturing map, the Indian government has initiated indirect tax reforms (GST), liberalized FDI regime (most of the sectors are under the automatic approval route), focussed on infrastructure (development of new railway lines, road and port construction, electrification and housing schemes) and even brought the Insolvency and Bankruptcy Code 2016 (to promote greater confidence among investors and lenders).
Manufacturing investment universe
For any fund that focussed on manufacturing, there are three sub-themes that it needs to concentrate on. The first is the export-oriented theme which contains companies involved in pharma, textiles, chemicals, auto ancillaries and IT. The second sub-theme is domestic capex, which includes companies involved in defence, oil & gas, capital goods, mining, and steel. The third sub-theme is domestic consumption which includes electronic goods, automobiles, power, and FMCG.
The fund acknowledges that India is one of the largest domestic consumption markets. The contribution of manufacturing in GDP has seen improving trend. ICICI Prudential Manufacture in India Fund has the flexibility to go overweight into the sub-themes of manufacturing based on various economic parameters.
NFO period – September 21 to October 5
Exit load – 1% up to 18 months
Benchmark – S&P BSE 500 index
Fund managers – Anish Tawakley and Mittul Kalawadia.
Tawakley also manages the ICICI Prudential Bluechip Fund (erstwhile ICICI Prudential Focused Bluechip Equity Fund).
On the other hand, Kalawadia also manages the ICICI Prudential Value Fund – Series 20, Series 10, Series 1, ICICI Prudential Focused Equity Fund, ICICI Prudential Midcap Fund, ICICI Prudential India Recovery Fund – Series 3, Series 2, Series 1, ICICI Prudential Growth Fund – Series 2, ICICI Prudential Dividend Yield Equity Fund, and ICICI Prudential Business Cycle Fund – Series 3, Series 1.
RupeeIQ take – ICICI Prudential Manufacture in India Fund gives you an opportunity to participate in diverse themes of manufacturing. However, this fund is not unique. There are similar ones like Aditya Birla Sun Life Manufacturing Equity Fund (launched in Jan-2015; and has a 3-year return of 12.07% and 1-year return of -0.93%) and BOI AXA Manufacturing & Infrastructure Fund (launched in Mar-2010; 5-year return of 17.89%, 3-year return of 12.02% and 1-year return of 1.35% ) amongst other options.
Any investment in ICICI Prudential Manufacture in India Fund could be in the form of SIP. While these themes being packaged neatly into a fund do seem appealing, the sub-themes selected by the fund viz. domestic capex, domestic consumption and export-oriented, are already addressed by many different fund options. So, you must be very clear on what exactly are you trying to achieve with investments in this fund. A combination of themes, theoretically, should lower portfolio risk further.
Disclaimer: This article is only for informational purposes. Investors should discuss with their financial advisor the scope of having this fund in their equity fund portfolio.