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Monday, August 7, 2017

Birla SunLife Manufacturing Equity Fund

The Make in India program was launched by Prime Minister Naredra Modi in September 2014 as part of a wider set of nation-building initiatives. It was devised to transform India into a global design and manufacturing hub. The primary motive of the campaign is to encourage multinational as well domestic companies to manufacture their products in India. This would create more job opportunities, bring high-quality standards and attract capital along with technological investment to bring more foreign direct investment (FDI) in the country.

 

Why India as the next manufacturing destination?

 

The rising demand in India along with the multinational's desire to diversify their production to include low-cost plants in countries other than China, can help India's manufacturing sector to grow and create millions of jobs. In the words of our Honourable Prime Minister- Mr. Narendra Modi, India offers the 3 'Ds' for business to thrive— democracy, demography and demand. Today, Indian manufacturing companies in several sectors are targeting global markets and are becoming formidable global competitors.

 

Demographic Advantage

 

·         The country is expected to rank amongst the world's top three growth economies and amongst the top three manufacturing destinations by 2020

·         Favourable demographic dividends for the next 2-3 decades. Sustained availability of quality workforce

·         Strong consumerism in the domestic market

·         Strong technical and engineering capabilities backed by top-notch scientific and technical institutes

·         The cost of manpower is relatively low as compared to other countries

 

Other changes/developments for promoting manufacturing

 

·         Emphasis on infrastructure development (highest budgetary allocation to roads and railways in FY17 Union Budget)

·         Incentives offered for manufacturing

·         Improvement in ease of doing business

·         Skill India mission (multi-skill development programme for job creation and encouraging entrepreneurship)

·         Opening up FDI in Defence, Civil Aviation, Broadcasting Carriage Services, Pharmaceutical, Animal Husbandry, etc.

The country is witnessing a spate of positive changes in the economy, providing a much needed impetus to the industrial sector. For instance, a recent World Bank report pegs India to be the fastest growing economy in the world in the next three years, outpacing our neighbour country. McKinsey & Co highlights an upswing in India's manufacturing sector, which is poised to touch $ 1 trillion by 2025 and potentially account for 25-30 percent of the country's GDP, creating as many as 90 million jobs along the way.

 

BSL Manufacturing Equity Fund

 

Performance

 

BSL Manufacturing Equity Fund is India's first manufacturing oriented fund launched on 31st Jan, 2015. Investors of BSL Manufacturing Fund have had a volatile journey since its inception due to global headwinds which have impacted the markets globally.  However it has managed to bounce back sharply within a short span of time and is currently delivering better returns than the benchmark index S&P BSE 500. The same can be inferred from the below graph:

 

During the Union Budget, necessary reforms were announced in order to attract more investments in India along with structural changes which have been put in place. This has lead to a gradual turnaround in the performance of the fund.

Source: Morningstar

 

Slowdown in US, consistent debt problems rising in Europe, deflation problems persisting in Japan, economic slowdown in China, Brexit referendum, etc. are some of the factors that have impacted the markets globally in the last 1 year. However investors who have continued to stay invested in the BSL Manufacturing Fund have seen a turnaround in the fund's performance. This indicates that investment made from a long term point of view along with sound fundamentals, deliver higher returns than the benchmark indices. In the last 1 year, BSL Manufacturing Fund delivered 1.80% compared to its benchmark S&P BSE 500 which delivered 1.15%. Fund has exposure to sectors which are focused towards the domestic economy. With an above average monsoon predicted for the current year along with implementation of 7th Pay commission, Indian economy is expected to see a cyclical upturn thereby helping the overall manufacturing sector.

 

Portfolio

 

·         BSL Manufacturing fund remains true to its name and predominantly invests in companies that are engaged in manufacturing sector. With various reforms planned and initiated by the central government to grow the manufacturing sector of India, BSL Manufacturing intends to be a part of India's long term growth as a global manufacturing and design hub. Some of the top holdings of the fund include Tata Chemicals, Maruti Suzuki, Sun Pharmaceuticals, Larsen & Toubro, ITC Limited, etc.

 

·         Fund manager is overweight on sectors such as Automobile, Industrial Manufacturing, Pharma, Consumer Goods, Chemicals, Cement and Textiles. Fund's overweight stance on some of the above mentioned sectors have been positive contributors to the fund.

 

                                                    Data as on 30th June 2016, Source: BSLAMC Internal Research

 

·         We continue to remain positive on Automobiles due to gradual improvement in growth rates of two wheelers, passenger cars and M&HCVs

 

·         Industrial manufacturing is expected to do well as the Power sector investments in the transmission space continues to grow while distribution would see uptick post UDAY reforms. Green energy & Emission based investment capex is at cusp of growth

 

·         In pharmaceuticals business, export momentum continues despite increased compliance requirements from US FDA and weak EM currencies. Consumer goods are expected to do well owing to implementation of 7th Pay commission and an expected recovery in the rural economy

 

·         The fund has a portfolio turnover strategy of 3.52% which indicates the buy-and-hold strategy of the fund manager. The ratio represents the percentage of a fund's holdings that change every year. This signifies that the fund manager prefers having high-conviction stocks in the portfolio with a long term investment view

 

The various steps taken by the government in terms of measures for ease of doing business, creation of favourable environment for the manufacturing activities, focus on improving industrial policies and FDI enhancement would aid in reviving the manufacturing sector and achieving global competitiveness. Ultimately, the economic changes should contribute handsomely to the overweight sectors in the portfolio.

 

A strong proposition in current times

 

India is focusing on becoming a global manufacturing hub at a time when there is an economic slowdown in China. It must take advantage of this situation which can be a crucial contributor to the GDP. China is currently facing overcapacity issues and debt problems which is why they are shifting towards a more service oriented economy. On the other hand, setting up manufacturing centres in India will help generating employment, increase manufacturing and industrial output and help India to have a sustained economic growth in the years to come.

 

The government is opening various avenues for FDI investments in order to get the technical know-how and also urging multinational companies to set up their manufacturing facilities in India. Some of the local companies that have agreed to set up their manufacturing facilities are Celkon, Spice Group, Micromax while multinational companies include Samsung, Huawei, Foxconn, Xiaomi, Lenovo, Qualcomm, Vivo Mobiles, Oppo. Government is in talks with other global companies to make India as their manufacturing hub.

 

FDI money is flowing in India chasing growth coupled with an expected recovery in the rural economy. Government's thrust on infrastructure development along with a favourable monsoon will lead in consumption led recovery for the Indian markets. Recovery in rural economy coupled with implementation of 7th Pay commission is likely to add more stimuli to consumption growth.

 

BSL Manufacturing Equity Fund is a fund for investors who are seeking long term capital growth by investing in companies engaged in manufacturing sector and have a high risk appetite. However we believe the portfolio's sector exposure is in sweet spot to deliver higher risk-adjusted returns since it's the only fund in the industry specifically focusing on manufacturing companies. We advice investors to stay invested for atleast 3-5 years in order to reap the benefits.


Scheme Name

1 Year

Since Inception

Birla Sun Life Manufacturing Equity Fund - Reg - Growth

1.80

1.06

S&P BSE 500

1.15

-1.98



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