Kotak AMC’s Business Cycle Fund Eyes All-Weather Stability, NFO Starts Sep 7: Know Details

Kotak Mahindra Asset Management Company Ltd (KMAMC) is all set to launch a new fund offer (NFO) for its Kotak Business Cycle Fund. This open-ended mutual fund scheme targets companies and sectors that can withstand the economic cycles or the market’s highs and lows.

The NFO will open for public subscription on September 7 and close on September 21. Announcing the fund to the press on Monday, the fund house said the scheme themed on business cycles would invest in equities of companies and sectors that can navigate through all situations.

The minimum investment amount during the NFO period is Rs 5,000. Elaborating on the scheme, the fund said the term ‘business cycle’ refers to the stages of expansion, moderation, and contraction that a company or a specific sector undergoes.

The fund, it said, would consider all economic parameters, including GDP growth, current account deficit, corporate profit growth trends, inflation, etc. In addition, it will take into account the investment and economic indicators, such as capex, capacity utilisation, credit growth, business confidence index, purchasing manager index, etc., before putting money in the equities.

Nilesh Shah, group president and KMAMC's managing director, exuding confidence in the scheme, said: "There are equity stocks across categories, which tend to do better at various stages of the business cycle." These companies, he said, managed to perform well across various economic parameters even during challenging times like economic slowdown. To identify business cycles and opportunities sector-wise, the fund plans to follow a top-down approach to portfolio construction.

“The portfolio, therefore, will focus on a few selected sectors that are likely to do well in a particular business cycle. Subsequently, a bottom-up approach will be followed to identify strong companies within those sectors,” said Harsh Upadhyaya, president and head of Kotak equity funds.
Upadhyaya said the fund would use a combination of factors, including the BMV framework, or business management and valuations, to select companies within these sectors.

Explaining the concept, Upadhyaya said that “In an early stage of the economy, cyclicals and rate sensitives tend to outperform, these include metals, power, infrastructure, capital goods, etc. In mid-cycle, growth moderates, and sectors such as energy, industrials, and banking could continue to do well. In the late cycle, or the contraction phase, sectors that typically generate high free cash flows such as fast-moving consumer goods, information technology, and pharmaceuticals tend to outperform.”

Taping Growth Opportunities

The Indian market has witnessed a flurry of new fund offers of late, lifted by the rapid improvement in the economy post the Covid-19-induced slowdown. Fund houses like Mirae Asset Mutual Fund, ICICI Prudential Mutual Fund, Edelweiss Asset Management Limited, WhiteOak Capital Mutual Fund, etc., have launched NFOs recently.