The fund follows a diversified, market cap-agnostic approach rooted in growth at reasonable valuations. In the last 3 years, the scheme has delivered a CAGR of around 22%.
Edited excerpts from a chat with Upadhyaya:
Since you started the manufacturing-themed equity fund in 2022, how has the theme evolved since then?Over the past 3 years, the policy focus on domestic manufacturing has grown multifold. We are steadily witnessing capital expenditure improving across many manufacturing segments in the country. We have also seen many new listings over the past 3 years coming from manufacturing sectors, especially in mid and small cap segments, thus enhancing the overall investible universe. All of these have helped us in delivering returns of around 22% CAGR to our investors.
The fund has exposure across large-, mid, and small-cap segments. What’s the approach to capital allocation across these categories?
The fund is market cap agnostic thematic fund. We decide on capital allocation across market capitalization categories based on relative growth and valuation dynamics between categories while maintaining sufficient diversification. As of 30th April 2025, the allocation pattern between large/mid/small cap segments stood at 54:27:17, with the remainder in cash.How are you adjusting your portfolio to reflect the new global reality under the Trump tariff regime? Is it going to change the list of winners and losers?Across Kotak MF, we had maintained a tilt towards domestic oriented businesses across our portfolios for the past several quarters given higher comfort on domestic growth vis-à-vis global growth. This positioning has helped us even during the current times when export oriented/ global facing businesses have seen more volatility due to ongoing trade tariff uncertainties. We are monitoring the evolving situation on tariffs to make changes to the portfolio, if any.
China+1 theme is expected to get bigger under Trump. Any new sectoral tailwinds you see coming from the changing geopolitical dynamics?Yes, it is likely that India emerges as a relative beneficiary in the ongoing tariff readjustments that are expected over the next few months. We expect that China+1 benefits will not be uniform across the sectors. In the near term, we believe Specialty Chemicals and Electronics manufacturing will possibly see those benefits quicker than many other manufacturing segments.
Which sub-sectors within manufacturing are currently showing the most promise from a medium- to long-term perspective?Most of the manufacturing areas are seeing strong growth opportunities in the medium to long term. We are particularly positive on defence manufacturing, chemicals, cement, electronics and industrials to name a few.
How do you balance thematic conviction with diversification, particularly in a fund that spans multiple sectors and market caps?While it is a thematic fund by definition, it allows reasonable diversification given that there are multiple sectors within the manufacturing theme to invest in. The investment opportunities are also from across the market cap segments. In view of this, we manage the fund with a market cap agnostic approach choosing investment opportunities across market capitalization ranges depending on relative growth and valuations. We have always maintained a fairly diversified portfolio across multiple manufacturing sectors with portfolio stock count of about 50-60 stocks.
Valuations in certain manufacturing-related sectors have expanded significantly. How are you managing the risk of overpaying for growth?The overarching investment philosophy that we follow at Kotak MF is ‘Growth at Reasonable Price (GARP)’. We stick to the same philosophy even while managing this fund. We are always conscious of valuations – both absolute and relative – while managing investments.
What are the primary risks to the manufacturing theme in India that investors should be aware of?Any thematic fund usually comes with a higher degree of risk than diversified funds as it is mandated to invest in a certain sector or a particular theme. Having said that, this theme spans multiple sectors and also has investment opportunities across market cap segments. Hence, compared to a single sector fund or a narrow theme, this fund offers significantly higher diversification. We suggest investors make prudent allocation to thematic funds keeping their risk tolerance in mind and also have a long term focus to benefit from the opportunities provided by the investment theme.
Lastly, for investors looking at this fund today, what’s the case for allocating capital to it at this point in the cycle?India is at the cusp of a manufacturing renaissance given improved demand outlook across sectors, renewed thrust on manufacturing by supportive Government policies such as Make-in-India, PLI etc, and possibility of higher share of global trade at least in certain sectors. Manufacturing themed funds capture all of these likely opportunities for the benefit of investors.
