Top-Performing India Funds Make Winning Bets on Chemicals
Small chemical firms among top holdings for the stock funds. Indian companies seek bigger share of global chemical market.
(Bloomberg) -- India’s best-performing stock funds have one thing in common: they’ve bet on companies that make the chemical substances used in items ranging from lip balms to crop-boosting fertilizers.
Chemicals producers make up at least 14% of the portfolio for three funds that have delivered the biggest returns this year among those with at least $500 million in total assets, according to Bloomberg-compiled data. Those bets have paid off thanks to rising global appetite for specialty chemicals in industries such as automobiles and cosmetics amid a recovery from the pandemic.
India is emerging as a hub for specialty chemicals, helped by favorable policy measures that include decisions such as imposing anti-dumping duty on some imports and a proposal for production-linked incentives. Producers have also benefited from a ‘China-plus-one’ strategy that has made companies around the world diversify their supply chains from the Asian superpower amid geopolitical concerns.
“We continue to be very optimistic on the long-term prospects of the chemical industry in India,” as it becomes an important player in the global supply chain, said Samir Rachh, who helps manage the nearly $2 billion Nippon India Small Cap Fund, the best performer with a 42% return year-to-date.
The biggest holding in Rachh’s fund is Deepak Nitrite Ltd., a maker of phenol and acetone used in numerous applications including mouthwash and nail-polish remover. He initiated that position in 2017 and increased it in 2019.
Shares of the firm based in India’s western Gujarat state have risen nearly 89% so far this year, taking their surge over the last five years close to 2,000%. Its revenue has more than tripled in the period to 43.6 billion rupees ($595 million) for the fiscal year ended March.
| Fund name | YTD performance | Chemical sector allocation | Chemical sector picks |
|---|---|---|---|
| Nippon India Small Cap Fund | 42% | 14.9% | Deepak Nitrite Ltd. Navin Fluorine International Ltd. |
| Kotak Small Cap Fund | 41% | 14.2% | Laxmi Organic Industries Ltd. Atul Ltd. |
| L&T Emerging Businesses Fund | 39.1% | 15.8% | Deepak Nitrite Ltd. Alkyl Amines Chemicals Ltd. |
*Allocation data as of May 31
The country’s chemicals companies are ramping up capex investments to produce high-value goods and expand their share of the global market, said Venugopal Manghat, who manages the $894 million L&T Emerging Businesses Fund.
Four of the top five funds in India this year are those that focus on small-cap stocks, an asset class that has handily beaten the benchmark index. The S&P BSE Smallcap index has surged almost 40% in 2021, compared to 10% for the S&P BSE Sensex Index.
READ: Asia Small Caps Are Roaring Back After Dip in May: Taking Stock
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