Thematic and sectoral funds have become the flavour of the season, with both fund houses and investors registering an over four-fold increase in monthly inflows over the past six months and drawing more than 55% of the total equity investments in June.
Last month, nine new fund offerings (NFOs) raised as much as Rs 12,974 crore. Monthly inflows into thematic and sectoral funds soared to Rs 22,532 crore in June, from Rs 4,805 crore in January. The growing demand for such funds also reflected in the number of NFOs (22) launched during the period.
“This is an effect of the bull market progressing, wherein investors are now seeking new growth opportunities and decent valuations,” said Anand Vardarajan, chief business officer, Tata Asset Management. He said typically after a “beta rally”, which is driven by larger index movements, investors start searching for emerging themes and growth pockets to generate an alpha, or higher returns.
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Asset management companies (AMCs) have launched funds on a variety of themes ranging from tourism to manufacturing. These include Baroda BNP Paribas Manufacturing Fund, Kotak Special Opportunities Fund, and SBI Automotive Opportunities Fund.
More such funds are going to be launched in coming weeks. Several thematic NFOs have already been announced in July, including Tata AMC’s Nifty Tourism Index Fund, ICICI Prudential’s Oil and Gas ETF (exchange-traded fund) and Energy Opportunities Fund, and Edelweiss Business Cycle Fund.
“AMCs have launched new funds targeting emerging sectors and themes such as manufacturing, defence and special opportunities, attracting significant investor interest,” said Gopal Kavalireddi, vice president of research at FYERS. The investor interest was evident from the fact that HDFC Manufacturing Fund saw a subscription of Rs 9,563 crore, he said.
Kavalireddi said investors are preferring tactical exposure to high-performing sectors to capitalise on sector-specific tailwinds while maintaining strategic exposure to diversified equity funds.
The positive trends and the government’s backing in areas such as public sector undertakings, defence, railways, energy and shipbuilding have captured investor attention, Kavalireddi said.
Explaining the shift in focus towards these categories, Souvik Saha, investment strategist at DSP Asset Managers, said: “Traditional funds have not been able to capture the rally the way these thematic and sectoral funds have over the past six months.”
These funds have been positioned in a way so as to capitalise on sectors or themes such as manufacturing, defence and capital expenditure, which are expected to benefit from the Budget announcements and policy changes, Saha said.
Market experts do not expect this trend to dissipate any time soon, considering the continued appetite among investors for such offerings. “Any new sectoral or thematic fund that comes up will be easily lapped up as there is a clear risk appetite among investors,” said Vardarajan.
