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India’s best-performing stock funds have one thing in common: they have bet on companies that make the chemical substances used in items ranging from lip balms to crop-boosting fertilisers.
Chemicals producers make up at least 14 per cent 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.
Emerging hub for specialty chemicals
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 super-power 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, a maker of phenol and acetone used in numerous applications including mouth-wash and nail-polish remover. He initiated that position in 2017 and increased it in 2019.
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Shares of the firm based in India’s western Gujarat State have risen 88% so far this year, taking their surge over the last five years to nearly 2,000 per cent. Its revenue has more than tripled in the period to ₹43.6 billion ($595 million) for the fiscal year-ended March.
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, versus nearly 11% for the S&P BSE Sensex Index.
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