The Honourable Finance Minister Ms. Nirmala Sitharaman presented the Union Budget 2022-23 in the Parliament on February 01, 2022, highlighting various measures taken by the government to enhance the economic recovery and boost the growth of sectors that fuels the economy.

The Indian manufacturing sector is expected to become a major driving force for the growth of the Indian economy. As per the Confederation of Indian Industry (CII), the manufacturing sector currently contributes 16-17% to the GDP.

According to the Union Budget 2022-23, government’s Performance Linked Incentive (PLI) schemes will have a favourable impact on the manufacturing industry. India will allocate an additional Rs 19,500 crore to boost investment in solar equipment manufacturing. In addition, the emphasis is on defence manufacturing, new-age technology, and the design-led manufacturing scheme for promoting 5G in the telecom sector that will boost the electronics and telecom manufacturing segment in the country.

The extension of the concessional tax regime of 15% tax for newly incorporated domestic manufacturing companies till March 31, 2024 supports the momentum of investment flows in the sector. Increased government support and the recently launched PLI schemes have given a push to strengthen the manufacturing sector in India. This is also in line with the new global objective of investing in clean energy, climate change, and environmental sustainability.

Manufacturing has emerged as one of the high-growth sectors in India. Investors seeking to generate optimal returns by investing in sectors supporting the economic revival may consider investing in the manufacturing industry. Kotak Mahindra Mutual Fund has launched Kotak Manufacture in India Fund; it is an open-ended equity scheme following a manufacturing theme.

Table 1: Details of Kotak Manufacture in India Fund

Type An open-ended equity scheme following a manufacturing theme Category Thematic Fund
Investment Objective The scheme shall seek to generate capital appreciation by investing in a diversified portfolio of companies that follow the manufacturing theme. However, there is no assurance that the objective of the scheme will be realized.
Min. Investment Rs 5,000/- and in multiples of Re 1 thereafter. Additional Purchase Rs 1,000/- and in multiples of Re 1 thereafter. Face Value Rs 10/- per unit
Entry Load Not Applicable Exit Load
  • For redemption/switch out of up to 10% of the initial investment amount (limit) purchased or switched in within 1 year from the date of allotment: Nil.
  • If units redeemed or switched out are in excess of the limit within 1 year from the date of allotment: 1%
  • If units are redeemed or switched out on or after 1 year from the date of allotment: NIL
Fund Manager Mr Harish Krishnan
Mr Abhishek Bisen
Benchmark Index Nifty India Manufacturing (Total Return Index)
Issue Opens: February 01, 2022 Issue Closes: February 15, 2022

(Source: Scheme Information Document

The investment strategy for Kotak Manufacture in India Fund will be as follows:

Kotak Manufacture in India Fund aims to generate capital appreciation from a diversified portfolio of equity and equity-related instruments, which invests into companies that are part of the manufacturing theme and engage in the following activities:

  • Directly engage in manufacturing activity
  • Benefit from Government’s Manufacture in India initiatives
  • Replace India’s imports by manufacturing in India
  • Export goods manufactured in India have the potential to increase employment in India
  • Invest in new manufacturing plants/facilities
  • Aid manufacturing of new-age technology solutions

Stocks forming part of eligible basic industries based on AMFI classification, as updated from time to time, and broadly representing the manufacturing sector (as defined by the benchmark index provider) would form part of the theme.

The selection of sectors that fall within the underlying theme of manufacturing would be driven primarily by the growth prospects and valuations of the businesses over the medium to long term as per the fund manager’s discretion.

The portfolio construction will be based on a thematic approach to bottom-up stock picking, using the Business, Management, and Valuation (BMV) model. The Fund Manager will evaluate the business environment that a company operates in, the capability of the management to execute and scale up the business, and the valuation of the company based on fundamentals like discounted cash flows and PE ratios, etc.

The scheme may also invest in listed/unlisted and/or rated/unrated debt or money market securities, provided the investments are within limits indicated in the Asset Allocation pattern. Investment in unrated debt securities will be made with the prior approval of the Board of the AMC, provided the investment is in terms of the parameters approved by the Board of the Trustee.

Under normal circumstances, the Asset Allocation will be as under:

Table 2: Asset Allocation for Kotak Manufacture in India Fund

Instruments Indicative Allocation (% of net assets) Risk Profile
Minimum Maximum High/Medium/Low
Equity and Equity Related Securities of companies having a manufacturing theme 80 100 Very High
Equity and Equity Related Securities of companies other than having manufacturing theme 0 20 Very High
Debt and Money Market Securities# 0 20 Low to Moderate
Units of REITs & InvITs 0 10 Very High

#Debt instruments shall be deemed to include securitised debts (excluding foreign securitised debt), and investment in securitised debts may be up to 50% of Debt and Money Market instruments. This will also include margin money for derivative transactions.
#Money Market instruments includes commercial papers, commercial bills, treasury bills, Government securities having an unexpired maturity up to one year, call or notice money, certificate of deposit, usance bills, and any other like instruments as specified by the Reserve Bank of India from time to time.

(Source: Scheme Information Document

The scheme may invest in another scheme of the Kotak Mahindra Mutual Fund or any other Mutual Fund without charging any fees, provided that aggregate inter scheme investment made by all schemes under the management of Kotak Mahindra Asset Management Company Limited or in 27 schemes under the management of any other asset management company shall not exceed 5% of the net asset value of Kotak Mahindra Mutual Fund.

About the benchmark

The Nifty India Manufacturing Index aims to track the performance of stocks representing the manufacturing sectors in India. The stocks are selected from a combined universe of the Nifty 100, Nifty Midcap 150, and Nifty Smallcap 50 index.

A stock’s weight in the Nifty India Manufacturing index is based on its free-float market capitalisation subject to the maximum weight of each stock at 5%. The index also has a minimum weight of 20% for certain manufacturing sectors.

Who will manage Kotak Manufacture in India Fund?

Mr Harish Krishnan and Mr Abhishek Bisen will be the designated fund managers of the scheme.

Mr Harish Krishnan is a Chartered Financial Analyst (CFA), holds PGDBM (IIM Kozhikode), and B. Tech (Electronics & Communications) degree. He has 16 years of experience spread over Equity Research and Fund Management. Prior to joining Kotak Mahindra Mutual Fund, he was based out of Singapore and Dubai, managing Kotak’s offshore funds. He has also worked at Infosys Technologies Ltd. in his earlier stint.

At Kotak AMC, Mr. Krishnan currently manages Kotak Bluechip FundKotak Balanced Advantage FundKotak Focused Equity FundKotak Pioneer Fund, and Kotak Infrastructure & Economic Reform Fund.

Mr Abhishek Bisen holds a BA in Management and an MBA in Finance. His key responsibilities include fund management of debt schemes. Before Kotak AMC, he has worked with Securities Trading Corporation of India Ltd. under the Sales & Trading division for Fixed Income Products, apart from doing Portfolio Advisory. His earlier assignments include 2 years of merchant banking experience with a leading merchant banking firm.

At Kotak Mutual Fund, Mr Bisen currently manages Kotak Bond FundKotak Gilt fundKotak Debt Hybrid FundKotak Gold FundKotak Gold ETFKotak Equity Savings FundKotak Equity Hybrid FundKotak Balanced Advantage FundKotak NASDAQ 100 Fund of FundKotak Nifty Alpha 50 ETF and Kotak Nifty 50 Index Fund.

Fund Outlook – Kotak Manufacture in India Fund

Kotak Manufacture in India Fund aims to invest in companies engaged in manufacturing activities. It provides investors with an opportunity for wealth creation alongside the growing Indian economy. The scheme endeavours to invest across the existing and evolving sub-sectors in the manufacturing segment. It may also take concentrated exposure to certain stocks based on conviction and lead to alpha creation.

The scheme allows investors to participate in the growth of key manufacturing segments, which are the focus areas of the government, through various initiatives like the Production Linked Incentive (PLI) scheme. The scheme offers investors an opportunity to generate optimal returns in the long term by investing in manufacturing companies focused on emerging spaces like Electric Vehicles, Defense electronics, battery tech, clean energy, new-age technology, etc.

The Union Budget 2022-23 announced various measures to promote domestic manufacturing and exports as a part of the ‘Atmanirbhar Bharat’ and ‘Make in India’ programmes. Such initiatives will provide better growth opportunities to companies engaged in manufacturing activities, resulting in a favourable outlook for the manufacturing sector.

It is noteworthy that, being a thematic fund, the scheme will focus on investing in companies only under the manufacturing segment, which makes it prone to concentration risk. Furthermore, the looming threat of the Delta and the Omicron variation, as well as the Fed’s declaration of tightening monetary policy, pose a significant risk to economic growth. The manufacturing sector is likely to stay under pressure and experience intensified volatility in the near term.

The fortune of this scheme will depend on the pace of the economic recovery and the manufacturing sector’s performance. These factors, among many others, could have a bearing on the scheme’s performance and may affect it negatively if the sector moves out of favour. As a result, it’s a very high-risk investment proposition and suitable for investors with an investment time horizon of over 5 years.

This article first appeared on PersonalFN here

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