Betting on manufacturing
Tata Multicap Manufacturing Index fund offer open till Apr 22
Tata Mutual Fund has launched the Nifty 500 Multicap India Manufacturing 50:30:20 Index Fund. This will be the first multicap passive fund focused on manufacturing. As a theme, manufacturing funds have outperformed the larger market (Nifty 500) over the past one, three and five years. The government focus on domestic manufacturing (Production Linked Incentives) and favourable macro factors (China plus one strategy) are expected to sustain this momentum this decade.
BROADER ACCESS
Until now, manufacturing indices typically had an inherent largecap tilt because of marketcap weights. The top constituents in the Nifty India manufacturing index are Mahindra & Mahindra, Maruti and Reliance Industries with weightage of 5 per cent each. In a highgrowth market such as India, mid and smallcap companies could provide investors the scope for higher returns albeit with higher risk. As illustrated in the chart below, the Nifty Midcap 150 and Nifty Smallcap 250 have outperformed the Nifty50.
Hence the multicap index could help capture this better. Tata AMC has cocreated the index for the Nifty500 Multicap India Manufacturing 50:30:20 (NMIM), along with Nifty Indices.
INDEX COMPOSITION
NMIM will have 75 constituents, the weights of which will be based on their freefloat market capitalisation with overall weight to large, mid and smallcaps fixed at 50 per cent, 30 per cent and 20 per cent and each stock at 10 per cent, respectively. The auto and auto components sector is the leading contributor to the index with an aggregate weight of 28 per cent, followed by healthcare (22 per cent), capital goods (13 per cent), and oil & gas (12 per cent). These top four sectors are in the midst of a strong upcycle with auto and auto components benefitting from strong domestic consumption. Both pharma and hospitals in the healthcare space have a long structural opportunity with
Niy500 multicap India manufacturing 50:30:20 index composition
Manufacturing fund performance (%) rising insurance coverage in India. Reliance Industries (9.96 per cent), Sun Pharma and Tata Motors (4.88 per cent each), and Mahindra & Mahindra (4.8 per cent) are the top constituents in the index. Among the small and midcaps, Cummins India (2.05 per cent), PI Industries (1.56 per cent), Bharat Forge (1.45 per cent), MRF (1.36 per cent), Ashok Leyland (1.24 per cent) and Sanofi (0.47 per cent).
PEER COMPARISON
The manufacturing theme (including active and passive) currently has eight options with only ABSL and ICICI Prudential having a track record beyond a year. ICICI PruFund has consistently outperformed the benchmark Nifty India Manufacturing index over the one, three and fiveyear period. Even though the active funds have the option to invest in small and midcap companies, it is completely discretional. The Navi Nifty India Manufacturing Index Fund is one of the passive options, but its benchmark is largecap tilted.
According to Bloomberg consensus estimates, the Nifty Midcap 100 and Smallcap 250 indices are currently trading at a multiple of 24.9x and 19.3x respectively on CY25 earnings, with forecasted earnings growth of nearly 25.6 per cent and 19.1 per cent. The largecap Nifty 50 is trading at 18.3x with CY25 earnings growth of 13.7 per cent. Valuations for the midcap and smallcap indices with the forecasted earnings growth appear favourable relative to the largecap index.
The Tata Multicap Manufacturing Index fund rides on the positive outlook of manufacturing as a theme and the high growth potential of the smalland midcap stocks (albeit at higher risk). Investors with a highrisk appetite and long investment horizon may consider investing in the NFO. The NFO is open from April 822.