Invest BSL Manufacturing Equity Fund Online
Recently the fund completed one year of existence and has turned out to be another successful fund offering. Since the launch in January 2015, the markets have been volatile with a downward bias due to a multiplicity of disappointing global & local factors. During this period (as on 31st January 2016) Nifty 50 has fallen by 14.1% and broader index BSE 500 has fallen by 11.7%. BSL Manufacturing Equity fund, during the same period, has outperformed the Nifty 50 and the broader index BSE 500 by a handsome margin of 7.2% and 4.8% respectively.
| Scheme (Data as on 31st January 2016) | 1 Year |
| Birla Sun Life Manufacturing Equity Fund | -6.9 |
| S&P BSE 500 Index | -11.74 |
| Nifty 50 Index | -14.14 |
| Birla Manufacturing Index | -8.89 |
Source: Value research
| Scheme Name (data as on 31st January 2015) | Std Dev | Sharpe Ratio | Up Capture Ratio | Down Capture Ratio |
| Birla Sun Life Manufacturing Equity fund | 11.52 | -1.23 | 131.45 | 87.78 |
| S&P BSE 500 India INR | 11.16 | -1.60 | 100.00 | 100.00 |
| IISL Nifty 50 PR INR | 10.62 | -1.80 | 80.76 | 103.00 |
What went right for the fund?
The fund continued to remain true to its label by investing in manufacturing sectors. Being overweight on auto and auto ancillary, healthcare and select industrial manufacturing stocks and being underweight on financial services and communication sector helped fund deliver an excess return over the benchmark.
Given market volatility, the fund chose to have a bias towards large caps. 65% of exposure has been towards large cap. Fund also has maintained 6-7% exposure to cash at most time during the last few months. Right from the inception, the fund has been cautious in deploying the cash collected during the NFO. Since markets continued to remain volatile all through 2015 and there has been continued uncertainty in terms of outlook for various manufacturing sectors, a very gradual deployment of cash has worked for the fund.
Within manufacturing sector, our stock picking has been very disciplined. The fund chose to invest in companies having strong managements, clean balance sheets and strong moats in their businesses, which gives them a strong advantage over the peers in the longer term.
Penetration of two wheeler and passenger cars in India is very low; with improving roads and increasing per capita income we expect this to improve substantially. Companies in this space have strong balance sheets and cash generation capability. In this regard the fund chose to have significant exposure. India, due to its skilled manpower; design and development capabilities plays a key role in ancillaries supplies to original equipment manufacturers. These companies also will benefit from domestic surge in production. Fund invested in companies here which have strong technological and scale advantage.
Indian pharmaceutical companies are at the cusp of a multi-year growth opportunity on account of increasing generic penetration across the world to contain government medical spends. In US, 30% of the world market, generics account for 70% of the drugs sold by volume and India supplies 25-30% of generic in the country on the back of superior R&D and manufacturing capabilities of Indian players. Many Indian companies have built near USD 1 bln sales franchise on the back of such an opportunity and are expected to compound at 15-20% CAGR for the next 3 years. Fund allocated approx. 17% of its corpus in pharma sector.
Last year we saw lot of activities in road and affordable housing; fund played the theme by investing in cement companies. Fund also kept an eye on all the primary issuances and participated in the fund raising of a fragrance company who has a moat in their business. Besides the fund has been well exposed to few names who would benefit because of industrial recovery. These will participate in the market upside.
| Top Stock Contributors |
| BOSCH LTD |
| SUN PHARMACEUTICAL |
| AUROBINDO PHARMA |
| APOLLO TYRES |
| GLENMARK PHARM |
| EICHER MOTORS LTD |
| Top Sector Contributors |
| PHARMA |
| AUTO & AUTO ANCILIARY |
A favourable bet for next 2 to 3 year period
Fund's strategy remains true to label, just as it was at the time of original portfolio construction. Fund manager focus remains on capturing the expected upside from the resurgence in specific sectors of high priority for the government as well as companies that have robust fundamentals.
Fund portfolio has largely been Large Cap biased with over 65% of exposure towards large cap companies since inception. Over past few months, fund has slightly been increasing exposure to quality midcap companies as the valuations are gradually starting to reflect some earnings growth.
Latest manufacturing sector indicator PMI data too suggests a positive uptick for the manufacturing sector. The Nikkei Manufacturing PMI index jumped to a four-month high of 51.1 in January 2016 after slumping to a 28-month low of 49.1 in December 2015. The 50-mark demarcates contraction from expansion. The new export orders sub-index too rose to 52.5 from 51.5, the highest reading in five months. Also FY16 data suggests; India's GDP is projected to grow at 7.6% compared with 7.2% last year, higher growth also hints at increased economic activity, which to quite an extant would give the much required push to manufacturing sector.
Finally estimates data too suggest an uptick in earnings number in coming months. While currently markets seem to have consolidated, gradual recovery is already underway in India (green shoots key data points) leading to a rerating in markets that will gradually eventually reward investors for investing when others seem to be scared. Thus we continue remaining confident in India's manufacturing sector's growth story and suggest to take a 2 to 3 year bet on this fund.
At the time of NFO too, we had recommended that this strategy be looked at from a 18-24 month perspective. At half way mark, we feel that the fund is already showing decent outperformance and as the growth becomes strong, it could perhaps be a theme for the next 3 – 5 years.
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