The transportation and logistics segment consists of industries broadly classified under three key sectors, which are Auto Original Equipment Manufacturers (OEMs), Auto Components (Ancillaries) and Logistics. The theme incorporates as many as 22 sub-sectors, including auto, auto ancillaries, shipping, ports, railways, roads and airlines. There are a couple of new mutual fund schemes being floated now in this segment, and you might be wondering about the reasons behind this.
The transportation and logistics sector presently has several growth-promoting factors in place. Better transportation services are in demand as per capita income rises. A number of government initiatives, including production-linked incentives, are designed to strengthen India’s manufacturing industry. For businesses in the logistics industry, the formalisation of the economy, the implementation of the Goods and Services Tax, and the rise in e-commerce transactions are secular tailwinds for growth. The National Logistics Policy, which was recently unveiled by Prime Minister Mr Narendra Modi, aims to create the conditions for India to become a logistics hub with two primary visions –
Reduce logistics costs in India by 5% of GDP over the next 5 years.
Improve India’s ranking in the Logistics Performance Index (LPI).
The transportation and logistics sector contains a wide spectrum of investment opportunities. It can be a good investment, given the fact that we are coming off a cyclical bottom with respect to industry volume and profitability. ICICI Prudential Mutual Fund has launched ICICI Prudential Transportation and Logistics Fund; it is an open-ended equity scheme following a transportation and logistics theme.
Commenting on the launch of this scheme, Mr Chintan Haria, head – of product development and strategy at ICICI Prudential AMC, said, “Transportation is an under-penetrated market in India. The new policy on logistics by the government underlines the key role played by the sector in the country’s economic growth. The formalisation of the economy and its positive correlation to GDP growth and the government’s initiatives to reduce costs and improve efficiency all stand to benefit the sector in the coming years. With muted performance in the last couple of years, we believe the theme is coming out of the woods, and there are more legs to recovery.”
“Coming to logistics, formalisation of economy, i.e., shift from unorganised to organised sector, aids in the growth of logistics space. India’s logistics market is estimated at $216 billion, out of which organised players contributed only about 3.5 per cent ($6-7 Billion) in FY 2020. We expect disruption in this segment and a market share shift from unorganised to organised players as Indian e-commerce shipments growth plays out. Going forward, government initiatives may lead to cost reduction and increase efficiency.” He further added.
Table 1: Details for ICICI Prudential Transportation And Logistics Fund
| Type | An open-ended equity scheme following a transportation and logistics theme | Category | Thematic Fund |
| Investment Objective | The objective of the scheme is to generate long-term capital appreciation by investing predominantly in equity and equity-related securities of companies engaged in the transportation and logistics sectors. However, there can be no assurance or guarantee that the investment objective of the scheme would be achieved. | ||
| 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 |
| Plans |
|
Options |
|
| SIP/SWP/STP | Available | ||
| Entry Load | Not Applicable | Exit Load |
|
| Fund Manager | Mr Harish Bihani Ms Sharmila D'mello |
Benchmark Index | Nifty Transportation & Logistics TRI |
| Issue Opens: | October 06, 2022 | Issue Closes: | October 20, 2022 |
(Source: Scheme Information Document)
The investment strategy for ICICI Prudential Transportation And Logistics Fund will be as follows:
ICICI Prudential Transportation And Logistics Fund is an open-ended thematic equity fund which will invest predominantly in equity and equity-related securities of companies engaged in the Transportation and Logistics sector-related activities.
The fund will have a blend of the top-down and bottom-up approaches for investment and have a Flexicap bias which will ensure that they can shift their investment based on the available opportunities to meet their objectives. The scheme endeavours to invest in stocks of companies engaged in various transportation and logistics-related business. The scheme will invest in auto original equipment manufacturers (OEMs), auto components (ancillaries) makers, and logistics companies.
The underlying theme includes companies with strong growth prospects, longevity, anti-fragility, and good return on invested capital (ROIC) over cycles. Within the theme, there are over 100 reliable companies, including those in the passenger vehicle, two- and three-wheelers, commercial vehicles, ports, shipping, rail transport, road transport, warehousing, e-commerce and food delivery sectors. Around 31 stocks make up the Nifty transportation and logistics benchmark index.
The scheme may also invest a part of its corpus in overseas markets in Global Depository Receipts (GDRs), ADRs, overseas equity, mutual funds, and such other instruments as may be allowed under the SEBI (Mutual Funds) Regulations, 1996, from time to time, including securities issued by companies engaged in transportation and logistics theme.
Under normal circumstances, the Asset Allocation will be as under:
Table 2: Asset Allocation for ICICI Prudential Transportation And Logistics Fund
| Instruments | Indicative Allocation (% of net assets) | Risk Profile | |
| Minimum | Maximum | High/Medium/Low | |
| Equity & Equity related securities of entities in the transportation and logistics theme | 80 | 100 | Very High |
| Other Equity & Equity related instruments | 0 | 20 | Very High |
| Debt instruments, Units of Debt Mutual Fund schemes* and Money market instruments @ and Preference Shares | 0 | 20 | Low to Medium |
| Units issued by REITs and INVITs | 0 | 10 | Very High |
@ Excluding subscription money in transit before deployment/payout
(Source: Scheme Information Document)
About the benchmark
Nifty Transportation & Logistics index aims to track the performance of the portfolio of stocks that broadly represent the transportation & logistics theme within basic industries like passenger vehicles, commercial vehicles, motorcycles, airlines, shipping and logistics solution providers etc.
The largest 30 stocks forming part of the eligible basic industries are selected based on their 6-month average free-float market capitalisation as on the cut-off dates at the end of January and July. Index stock weights are based on their free-float market capitalisation, and stock weights are capped at 10% each.
Here’s the list of the top 10 constituents by their weightage and sector representation under the index as on September 05, 2022:
(Source: ICICI Pru Transportation And Logistics Fund PPT)
Who will manage ICICI Prudential Transportation And Logistics Fund?
Mr Harish Bihani and Ms Sharmila D’mello (overseas investments) will be the designated fund managers for this scheme.
Mr Harish Bihani holds an MBA (Finance) degree from IBS, Hyderabad, and he has around 12 years of experience in equity research. Prior to joining ICICI Pru AMC, he was working as a Senior Research Analyst with SBI Mutual Fund, Kotak Institutional Equities, CIMB Securities, and RBS Equities India Pvt. Ltd. and as a Research Analyst with Indiabulls Securities Ltd. and Reliance Equities International Pvt. Ltd.
At ICICI Pru Mutual Fund, Mr Bihani currently manages ICICI Prudential Smallcap Fund and ICICI Prudential Long Term Equity Fund (Tax Saving).
Ms Sharmila D’mello is a CA and holds a Bachelor of Commerce in Accounting and Finance (BAF) degree. She joined ICICI Prudential Asset Management Company Limited in September 2016 as a support member in day-to-day functions and handles work related to MIS preparation.
At ICICI Pru Mutual Fund, Ms D’mello currently manages ICICI Prudential NASDAQ 100 Index Fund, ICICI Prudential Strategic Metal and Energy Equity Fund of Fund, ICICI Prudential Global Stable Equity Fund (FOF), ICICI Prudential US Blue-chip Equity Fund, and ICICI Prudential Passive Multi-Asset Fund of Funds.
Fund Outlook – ICICI Prudential Transportation and Logistics Fund
ICICI Prudential Transportation and Logistics Fund aims to predominantly invest in equity and equity-related securities of companies engaged in the transportation and logistics sectors. The scheme will contain 40-50 stocks that will try to have higher indexation to the auto ancillary, logistics, and mid- and small-cap space than the benchmark.
The transportation and logistics sector are witnessing a recovery in demand based on various factors like a boost in EV sales, an increase in the international players in the auto sector, a rise in demand for logistics, an increase in exports, and government initiatives. These factors will help in improving the overall demand for stocks belonging to this sector and eventually enhance portfolio performance.
However, do note that an economic slowdown can impact these sectors and, therefore, the schemes that track them. A possible global slowdown and recession may dampen some export demand in the near term, and rising interest rates can put some pressure on demand for vehicles. Since this fund invests only in a single sector, it carries concentration risk.
Additionally, the persistent repercussions of the geopolitical tension, spiralling inflation and the RBI’s policy rate hike by 50 basis points may cause a significant risk to economic growth. The margin of safety appears to be narrow, and the clear direction for the equity market from the current elevated levels is unknown. These factors, among many others, could have a bearing on the scheme’s performance and may negatively affect the scheme’s portfolio if the sector moves out of favour.
The performance of the transportation and logistics segment will determine the success of the ICICI Prudential Transportation and Logistics Fund. Thus, it’s a very high-risk investment proposition, and only aggressive investors who have the ability to time the exit well can consider having a tactical allocation to the sector. Ensure you have a long investment horizon and that your investment objectives align with the fund.
This article first appeared on PersonalFN here
