Transportation theme catches fund houses' fancy as stocks outperform

Line up new fund offers following sharp outperformance by stocks in the space

The Nifty Transportation & Logistics Index has surged 14 per cent in the past year, even as the benchmark Nifty50 remained flat. Some fund houses see this uptick in the transportation and logistics sector as the start of a multi-year recovery cycle.

Against this backdrop, mutual fund (MF) houses have lined up two new fund offers (NFOs) around the transportation theme. The scheme information documents for more such schemes could get filed over the next few months. The two NFOs of the transportation and logistics fund by ICICI Prudential MF and IDFC MF are open for subscription this month.

Meanwhile, UTI MF already has one such scheme, which has delivered a 20 per cent compound annual growth rate in three years and 19 per cent in one year, shows Value Research data. The Nifty Transportation & Logistics Index comprises stocks from industries like automotive, aviation, shipping, and logistics solutions.

The stocks with the highest weight are Mahindra & Mahindra, Maruti Suzuki India, Tata Motors, Adani Ports and Special Economic Zone, and Eicher Motors.

Automotive and its component stocks make up 74 per cent of the index. The two schemes that are getting launched, however, are actively-managed funds and their allocation will differ from the Nifty’s index. Analysts expect the automotive sector to gain from sales and margins.

“Except for tractors, all other automotive segments are still below the 2018-19 peaks. After Covid, sales from urban and higher income groups have recovered. Once the rural economy gets back on track, sales of automobiles will hit a new growth trajectory. Meanwhile, sales are expected to grow in double digits due to rising per capita income and gross domestic product growth," said Jay Kale, senior vice-president-research, Elara Capital.

The analyst sees two-wheeler sales rising 15 per cent, passenger vehicle sales growing at 20 per cent, and commercial vehicle sales jumping 30 per cent in 2022-23.

Moreover, higher sales are expected to land even higher profits for companies. According to Motilal Oswal Investment Services (MOIS), margins are set to improve, notwithstanding rising input costs.

“For the second quarter in a row, we expect margins to improve, led by price hikes and operating leverage, despite the residual impact of an increase in input costs,” stated an MOIS report.

Logistics industry gets a leg-up

Last month, the government launched the National Logistics Policy to promote seamless movement of goods across the country with the right use of data and technology.

According to Jefferies, the organised logistics companies are set to benefit from the regulatory push.

Their share in total logistics cost is expected to more than double from $30 billion in 2021-22 to $65 billion by 2025-26, according to Jefferies’ estimates. Apart from revenue growth, Kale sees the margins holding up for logistics companies.

“Fuel prices have corrected, but freight rates have been resilient. Moreover, the central government’s focus to bring down the cost of logistics is set to aid efficiency,” he said.

Should investors go for NFOs?

Going by the numbers and views of analysts, there seems to be a growth case for transportation and logistics sectors, but retail investors should be cautious when investing in a sectoral or thematic fund.

Most sectors are cyclical in nature and can remain subdued for years at a stretch. These schemes best suit investors with intimate knowledge of the sector and can pull out money at the right time.

Given the higher risks, sectoral funds are better suited for investors who have experienced advisors or have the appetite to take higher risks like high networth individuals, said investment experts. There are also some advisors who recommend thematic funds to clients for satellite allocation.

“These funds make sense for investors who are well versed with the sector and know when to enter/exit,” said Lovaii Navlakhi, founder and chief executive officer, International Money Matters.