HDFC BANK INVESTMENT ADVISORY GROUP
AAG
th
9 January, 2015
PERSONAL FINANCE INSIGHT
Birla Sun Life Manufacturing Equity Fund
Birla Sun Life Mutual Fund has launched an open-ended equity scheme, Birla Sun Life Manufacturing Fund. The
investment objective of the scheme is to generate long-term capital appreciation to unit holders from a portfolio that is
invested predominantly equity and equity related securities of companies engaged in manufacturing activity. However,
there can be no assurance that the investment objective of the scheme will be achieved.
Investment Rationale
Importance of Manufacturing, the world over: The most successful economies globally have at some point in time or the other,
been manufacturing superpowers. China, US & Japan are all examples of the same. All these three large economies had 25% or
higher Manufacturing as a percentage of GDP for 20 years or more. Manufacturing not only contributes to higher economic growth
but also creates sustainable growth for such economies by structurally changing the economy and income structure.
Contribution of manufacturing sector to GDP
Source: Birla Sun Life Mutual Fund
According to the Fund, manufacturing has a lasting impact on any country’s growth. Considering the scenario in US and China,
growth in Manufacturing sector leads to the following:
Multiplier effects on GDP from Industry (1980-2013): ~31x (China) & ~10x (India).
Manufacturing resulted in huge employment generation and sustainable growth.
Results in trickle-down effect positively impacting other parts of GDP also.
China followed an export led manufacturing growth model - direct correlation with world’s economic state; India
could be a domestic driven one.
The funds view on Manufacturing sector in India:
According to the fund, the manufacturing industry in India has gone through various phases of development over time.
While manufacturing started picking up initially, it never developed to its full potential for a variety of reasons. With
liberalisation and economy opening up, India saw an explosion in services sector and now the services sector contributes
about 55% of GDP. The fund believes that this trend is clearly unsustainable from a growth & population point of view.
India contributes 1 million new workforce additions each month.
Despite the natural bounty of resources and abundant skilled & unskilled human resources, India’s growth in the
manufacturing sector has been moderate. Manufacturing sector currently contributes about 15% of India’s GDP and
about 12% of the workforce in 2008. Every job created in manufacturing has a multiplier effect, creating 2–3 jobs in the
services sector. In a country like India, where employment generation is one of the key policy issues, this makes the
manufacturing sector a critical sector to achieve inclusiveness in growth.
Despite a focus on these areas, Auto & Pharma have been two very large success stories for Indian manufacturing. Cost
& Quality have both contributed to India’s strong performance and made India a global leader. India is currently the fastest
growing Auto market in world with all major MNC manufacturers setting up manufacturing in India for domestic or export
opportunity and in Pharma, India owns 80% volume market share of Generic drugs manufacturing.
How Manufacturing sector is going to be benefited?
According to fund, the current government is progressive with a solid track record of industrial growth and development in place
and completely focused on manufacturing. Recently, the govt. launched the “Make in India” campaign which focuses exclusively
on developing India as a manufacturing hub. The key growth drivers for the sector will be:
Slew of reforms & focus on investment: New investment cycle & opening of FDI in key sectors like Defence &
Railways will open floodgates for Indian cap goods while it will also make India a better place to do business for MNCs.
Labour Cost & reforms: The cost of labour in India is cheaper than in most other countries, thus providing a competitive
advantage to the country’s manufacturing sector. At the same time, many states have already started the process of
overhauling the archaic labour laws benefitting many of these manufacturing sectors. A textile is a clear beneficiary.
Rise in export and domestic orders: Manufacturing activities have gradually risen due to new export orders and
increased domestic demand recently.
Increasing export competitiveness with currency depreciation: The Indian Manufacturing sector has gained further
competitiveness due to currency fluctuations and soaring operational cost elsewhere in world which augur well for growth
opportunities in the Indian manufacturing sector.
Tax reforms: The Interim Indian Budget 2014-15 proposed changes in indirect taxes which include factory gate tax to be
reduced to 10% from 12% on some capital goods and consumer durables as well as excise duty cut on small cars, two
wheelers and commercial vehicles to 8% from 12%. GST implementation will put the wheels of development in high gear.
Annual GDP growth could pick up 1 – 2 % p.a. on GST implementation alone. Consumer Goods, so far the bedrock of
Indian economy, will be the biggest gainer from it.
Investment Strategy
The fund would follow a top down approach to arrive at the overweight / underweight sectoral position while bottom up stock
picking to pick stocks or take advantage of mispriced opportunities. The fund would be looking to construct a diversified portfolio
with 35-40 stocks. The fund would select the companies based on the nature and stability of Business, prospect of future growth
and scalability, Financial discipline and returns, Valuation in relation to broad market, expected growth in earnings and the financial
strength and track record.
Investment Objective
The primary investment objective of the Schemes is to generate long-term capital appreciation to unit holders from a portfolio that
is invested predominantly in equity and equity related securities of companies engaged in Manufacturing activity. The scheme
does not guarantee any returns. There can be no assurance that the scheme objectives will be achieved.
Scheme Features
Entry Load: Nil
Asset Allocation Pattern:
Equity & Equity related securities of Manufacturing Sector Exit Load: If Redeem within 365 days-1.5%, Redeem Between
365-540 Days- 1%, and above 540 days-Nil
Companies: 80% to 100%
Cash, Money Market & Debt instruments : 0-20%
Investment Option: Growth and Dividend (Pay Out and Re-investment)
Minimum Application Amount: Rs. 5000 and in multiples of Rs.1/- thereafter
Tenure: Open-Ended Scheme
Benchmark Index: S&P BSE500
Fund Manager: Mr. Anil Shah
Performance of the Funds managed by Mr. Anil Shah
Scheme Name
Birla Sun Life Equity Fund
Birla Sun Life India GenNext Fund
Birla Sun Life Special Situations Fund
CNX Nifty Index
CNX Midcap
Absolute %
3 Months
6 Months
8.58
11.85
14.20
25.35
11.66
13.85
3.99
10.21
8.82
13.40
1 Year
56.61
50.99
61.86
Compounded Annualised %
2 Years
3 Years
5 Years
29.52
31.49
12.91
25.79
32.13
20.46
28.43
27.48
11.28
31.39
55.91
18.43
21.64
21.40
27.16
9.75
11.10
Source: MFI Explorer - ICRA - Report as on December 31, 2014. Past Performance Is Not A Guarantee Of Future Returns.
Recommendation
The equity market is expected to generate above average returns over the next 3-5 yrs. The funds primary theme would
be to invest in companies engaged in Manufacturing activity in India. This would include sectors like Auto & Auto
Ancillaries, Pharmaceuticals, Engineering Goods, Consumer Goods, Refiners, Cement and Metals. Recently, the
Government has Launched the “Make in India” campaign which focuses exclusively on developing India as a
manufacturing hub. Since the scheme would be investing into manufacturing theme, the scheme is suitable for
aggressive investors with an investment horizon of atleast 3 yrs.
NFO Closes on 27th January 2015
Risk Factors: Investments in the Scheme are subject to various risk factors including but not limited to risks associated with: investment in Equity and Equity related instruments, investments in
Fixed Income Securities such as Price – Risk or Interest – Rate Risk, Credit Risk, Liquidity or Marketability Risk, Reinvestment Risk etc., investments in Derivatives (The risks associated with the
use of derivatives are different from or possibly greater than, the risks associated with investing directly in securities and other traditional investments), investments in Securitised Debt assets which
would be in the nature of Mortgage backed securities(MBS) and Asset backed securities(ABS) with underlying pool of assets and receivables like Housing Loans, Auto loans and corporate loans.
The various risks associated with securitized assets include Prepayment Risk, Credit Risk, Liquidity Risk, Conversion risk, Price risks etc. The Scheme shall also be subject to risks associated with
stock lending to the extent in engages in stock lending activities. Different types of securities in which the Scheme would invest as given in the Scheme Information Document/ Key Information
Memorandum carry different levels and types of risk. Accordingly the scheme’s risk may increase or decrease depending upon its investment pattern. e.g. corporate bonds carry a higher amount
of risk than Government securities. The above are some of the common risks associated with investments in various securities. There can be no assurance that a Scheme's investment objectives
will be achieved, or that there will be no loss of capital. Investment results may vary substantially on a monthly, quarterly or annual basis. Further, the Fund/ AMC is not guaranteeing or assuring any
returns. Further, it should be noted that the actual distribution of dividends and the frequency there of are indicative and will depend, inter-alia, on availability of distributable surplus. Dividend
payouts will be entirely at the discretion of the Trustee. Investors may, if they wish, consult their legal, tax, investment and other professional advisors to determine possible legal, tax, financial or
other considerations of subscribing to or redeeming Units, i.e. before making a decision to invest/ redeem Units.
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