ICICI Prudential Mutual Fund has recently launched ICICI Prudential Transportation and Logistics Fund, an open-ended equity scheme predominantly investing in equity and equity-related securities of companies engaged in transportation and logistics theme. The NFO closes on October 20, 2022, and the fund managers will be Harish Bihani and Sharmilla D’Mello (for Overseas Investments).
Sanjeev Sinha of Financialexpress.com recently caught up with Harish Bihani, Senior Fund Manager, ICICI Prudential AMC, to understand his rationale behind the launch of the transportation and logistics theme-based fund and for his take on the biggest risk factors associated with this fund. Excerpts:
The auto sector has seen a considerable rally after a muted 4-5 years. Do you see any room for further upside from hereon in the auto space?
The auto sector over the past six years saw significant disruptions (GST implementation, IL&FS crisis, demonetization, pandemic, Russia-Ukraine crisis) and regulatory changes (transition from BS-IV to BS-VI, changes to safety norms, insurance premium hikes etc.) all of which either led to lower demand or increased the cost of a purchase. As a result, volume growth dwindled and margins were under pressure, resulting in tepid earning and muted stock performance. All of these are now receding and making way for a likely healthy earnings growth over the next few years.
Separately, India’s per capita income is on the rise, indicating further room for rise in discretionary spend which may benefit the sector. Also, we have a long way to go in terms of auto penetration as compared to other economies which are at an advanced stage. For example, the number of vehicles (cars) per 1000 persons in India is 24 whereas in case of USA, UK and Italy it is 330, 340 and 650, respectively. Given the rising fuel prices and increased focus to reduce emissions, countries globally have adopted electric vehicles in a significant manner and India is expected to follow suit, thereby giving rise to multiple investment opportunities.
Logistics is one segment which is dominated by unorganised players. Do you see this trend shifting to organised players in the near term?
India’s logistics market is estimated at $216 bn, out of which organised players contributed only ~3.5% ($6-7 bn) in FY 20. With the formalisation of the economy, we expect disruption in this segment and market share to shift from unorganised to organised players.
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Is the play on logistics hinging largely on the growth of ecommerce in India?
E-commerce will be one of the key pillars for growth in the logistics market. That said, the other areas like rail or road logistics, warehousing, ports, etc., too will play a key role in the growth, which will be aided by several supportive Government policies like the recently-launched National Logistics Policy (NLP) and the PM Gati Shakti National Master Plan for Multi-Modal Connectivity introduced last year.
There has been a consistent thrust by the Government to improve roadways and logistics through various policy support. How important is this component for the theme? Do you see any adverse impact for the policy implementation failing?
Transportation and logistics are aspects which are considered a growth engine for a growing economy like India. Policy support is one of the aspects which can help achieve seamless movement of goods while improving competitiveness. Through NLP the aim is to reduce the cost of logistics and make the segment affordable to local stakeholders and comparable to global standards. The other objective is to improve India’s position in Logistics Performance Index (LPI) and bring the country to the top 25 LPI group by 2030 and create a data-driven decision support mechanism for an efficient logistics ecosystem. Despite the overhang of logistics cost being high and modal transportation skewed towards roadways, we have come a long way. So, we believe over the next three-five years, the tailwinds the sector faces will aid in the robust growth of logistics.
Is there a provision to invest in overseas securities within the 20% investment outside the theme?
Yes, there is a provision of overseas investment in the fund and the same will be not more than 20% in the portfolio. That said, this is an enabling provision and will be used judiciously.
What according to you is the biggest risk factor for the transportation and logistics theme-based fund?
In the near future, the probable headwinds that the theme could face is in the form of rising interest rates, economic slowdown globally which would impact export demand. But the silver lining is that these challenges are transitory in nature and may not materially impact the theme’s medium-term earnings outlook.
While investing in this theme, what are the factors an investor should be mindful about?
Given that the fund is thematic in nature, investors should have at least a five-year investment horizon. Since this is a play on the India growth story, there could be phases of heightened volatility in the short term.