Manufacturing hottest theme on the block? Motilal thinks so with latest NFO

The fund aims to maintain a well-balanced portfolio with 80% to 100% exposure in each of manufacturing stocks.

India is manufacturing like never before, and to capitalise on the trend, fund houses, too, are lining up thematic manufacturing funds. Motilal Oswal Asset Management Company (MOAMC) on Thursday launched a new manufacturing thematic open-ended equity scheme titled  “Motilal Oswal Manufacturing Fund”. In May Tata AMC's passive offering and an active one from HDFC also launched manufacturing funds. 

Key Fund Details:

• NFO Period: 19 July 2024 to 2 August 2024
• Investment Objective: To achieve long term capital appreciation by predominantly investing in equity and equity related instruments of companies engaged in the manufacturing activity.
• Benchmark: Nifty India Manufacturing Total Return Index

Portfolio Strategy: This fund offers a concentrated investment strategy in manufacturing companies (around 35 stocks) that the fund manager believes will benefit from the current upswing in capital expenditures. It aims for a high allocation (80-100%) to manufacturing stocks to maximize potential returns. This strategy is designed for investors with a long-term outlook who are comfortable with a focused approach and seeking capital appreciation through manufacturing's growth.

The Fund Management Team:

1. Niket Shah, CIO, MOMF

2. Ajay Khandelwal, Fund Manager, MOMF 

 “The evolving geopolitical scenario and domestic economic strength strategically positions India as an emerging manufacturing hub in the world. The sector is expected to gain interest and witness an upward mobility of investments from the international investors increasing exports to 4.5% by 2031, up from approximately 1.5 percent at present. Government has also set an ambitious target of 25% of the Indian economic output for manufacturing by 2025. When looked at India's lower manufacturing wage cost compared to other SEA nations, along with a labour productivity growth of 6.2% compared to China's 4.2% for FY24, it indicates that India has an advantage over other nations in terms of increased production. With China+1 theme playing out, India is expected to benefit from the shift of production outside China," said  Prateek Agrawal, MD and CEO of Motilal Oswal Asset Management Company.

Manufacturing themes

 “Manufacturing focused funds could add diversification to an investor’s portfolio. There’s a multitude of sectors which offer exponential opportunity to the country’s exports with EMS, Chemicals and Defence leading the charge. Our government has set out a target of over Rs 500 billion in exports by end of this decade supported through indigenization and policy aid. Our country poses a smooth growth trajectory as we are witnessing a macro goldilocks event (Expected softening inflation, expected rate cuts, CAD Surplus and healthy forex reserves). Hence, as part of our strategy we will be investing in the uniquely positioned high conviction house identified high growth manufacturing themes which we believe might benefit from current cycle," said Niket Shah, CIO, Motilal Oswal MF.

Should you invest? 

According to Value Research, such concentrated funds are highly cyclical in nature. To make money from them, timing the market becomes necessary, which makes them highly risky. Barring the gains in 2023, the manufacturing index has mostly underperformed the market in the last few years. Additionally, stocks of the actively managed funds were also behind peers in diversified schemes. "Hence, it is prudent to explore diversified equity funds that counter the concentration risk (manufacturing in this case) present in thematic funds. Most manufacturing funds are relatively new with limited performance history," said Karan Jaiswal of Value Research.

Opportunities in manufacturing, according to Motilal