The preference for cyclical stocks since the market rally that began in September 2013 and the pick-up in auto sales in the following years have spelled good times for UTI Transportation and Logistics fund. Over the last three years, the fund has clocked returns of about 40 per cent, compared with the 21 per cent returns of the BSE Auto Index, the 11 per cent returns by the bellwethers and the 14 per cent clocked by the Nifty 500 index.

UTI Transportation and Logistics is a sector fund with 70-80 per cent of its holdings in the auto and auto ancillaries space.

Moves that worked

A turnaround in auto sales and the likely trickle-down benefits from the economic recovery to logistics companies fuelled the huge gains clocked by these stocks in the last two-three years.

During the early months of the rally in 2013 and 2014, the fund rightly latched on to mid- and small-cap auto ancillary stocks which raked in hefty gains. Mid and small-cap holdings, which stood at 20 per cent of its portfolio in September 2013, gradually moved up to around 35 per cent by September 2014. Considering that heavy truck and bus sales were among the first segments to show signs of recovery, the fund added small- and mid-cap commercial vehicle suppliers, such as Jamna Auto Industries, Sundram Fasteners and Automotive Axles in this period.

Even after some correction in the ongoing volatility, these stocks sport gains of two-five times in the last three years. Multi-fold gains in smaller tyre stocks such as JK Tyre and CEAT due to the steep fall in rubber prices also helped boost returns. With car sales picking up, increasing stakes in large-cap auto manufacturers, such as Maruti Suzuki (7-9 per cent holding), also worked well. Despite recent corrections, the stock has almost tripled in the last three years.

Good churn

Though the upturn in auto sales is not over yet, auto and auto component stocks have zoomed quite sharply and valuations have inched up in many stocks. But the fund still shows promise because of its good churn. As valuations of stocks such as Bosch, Wabco and Eicher Motors moved over 50 times their trailing earnings, it cut down on these stocks in the last one year. This helped contain the fall in NAV even as the stocks went through some correction.

Simultaneously, as the prospects of two-wheelers and tractors improved in recent times, thanks to the good monsoon outlook, the fund increased stakes in stocks such as Hero MotoCorp and Mahindra and Mahindra. It now holds 9.4 per cent in Hero as against 5-6 per cent a year ago and 7 per cent in M&M versus 3 per cent a year ago. With the domestic business of Tata Motors turning around and Jaguar Land Rover also doing well, the fund has raised holdings in Tata Motors to 11 per cent now, from around 7-8 per cent earlier this year. Tata Motors still remains among the cheaper buys.

Related Topics
comment COMMENT NOW