Stocks

Top-performing Indian funds make winning bets on chemical stocks

Bloomberg June 16 | Updated on June 16, 2021

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

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.

Published on June 16, 2021

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