These 5 Mutual Funds Are Betting Big on EV Stocks

Apr 22, 2022

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The Indian automobile industry appears set for a major transformation with a shift to electrification.

Currently, the Electric Vehicle (EV) industry is at a nascent stage in India. It accounts for just 1.3% of total vehicle sales as of FY 2020-21. However, EVs are increasingly gaining acceptance. EV sales are growing rapidly, mainly in the two-wheeler segment.

According to a report by consulting firm RBSA Advisors, India's EV market is expected to grow at a Compounded Annual Growth Rate (CAGR) of 90% in this decade to touch US$150 bn by 2030.

Many investors, including domestic mutual funds, are looking to benefit from this meteoric rise. They are investing in stocks in the Indian EV segment.

 

And it's not just the auto Original Equipment Manufacturers (OEMs) that are likely to benefit.

Various ancillary industries -component providers, battery manufacturers, chemical companies, EV charging providers- and many others in the EV ecosystem will benefit. So, in this paradigm shift to electric mobility, the money-making opportunity is BIG.

One way to profit from this trend is mutual funds that are investing in EV stocks.

In this article, we will look at some diversified equity mutual funds with high exposure to EV stocks.

#1: L&T Large & Midcap Fund

Launched in May 2006 as L&T India Special Situations Fund, this scheme was rechristened and recategorised as a Large & Midcap Fund, after SEBI's mutual fund categorisation and rationalisation norms.

The fund aims to generate long-term capital growth from a diversified portfolio of predominantly equity and equity-related securities with a minimum allocation of at least 35% each in large-cap and mid-cap companies.

As per the portfolio as of March 31, 2022, L&T Large & Midcap Fund held an allocation of around 54% to large-caps, around 36% in mid-caps, around 8% in small-caps, and the balance in cash and others.

Table 1: Top EV stock holdings of L&T Large & Midcap Fund

Stocks % of Assets
Reliance Industries Ltd. 5.45
Tata Power Company Ltd. 3.12
Sona BLW Precision Forgings Ltd. 2.59
Minda Industries Ltd. 2.39
Tata Motors Ltd. 2.38
Data as of March 31, 2022
(Source: ACE MF, PersonalFN Research)
 

L&T Large & Midcap Fund holds a fairly diversified portfolio of 56 stocks of which 10 are EV-related accounting for about 21.9% of its assets.

The fund's EV portfolio includes auto OEM and ancillaries such as Tata Motors, Sona BLW Precision Forgings, and Minda Industries. It has exposure to the charging infrastructure space with holdings in Reliance Industries and Tata Power Company.

It has invested in companies such as Tata Elxsi and L&T Technology Services that develop software and other similar solutions for EVs.

It also holds Tata Chemicals and Neogen Chemicals that provide chemicals used in lithium-ion cell technology, battery recycling, and battery production.

These 5 Mutual Funds Are Betting Big on EV Stocks
(Image source: www.freepik.com - photo created by frimufilms)
 

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#2: Templeton India Value Fund

This scheme was launched in September 2003 as Templeton India Growth Fund. But it has always followed a value style of investing. It was rechristened as Templeton India Value Fund after SEBI's re-categorisation and rationalisation norms.

 

It invests in undervalued companies which offer the potential to generate wealth over the long term in the form of capital appreciation.

As per its portfolio as of March 31, 2022, Templeton India Value Fund held 34 stocks with around 70% of its net assets in large-caps, about 11% in mid-caps, and about 7% in small-caps. Of the total, around 8 stocks are from the EV theme accounting for 20.5% of its portfolio.

Table 2: Top EV stock holdings of Templeton India Value Fund

Stocks % of Assets
Tata Motors Ltd. - DVR Ordinary 4.56
NTPC Ltd. 4.05
Bharat Electronics Ltd. 3.33
Bajaj Auto Ltd. 2.88
Indian Oil Corporation Ltd. 2.25
Data as of March 31, 2022
(Source: ACE MF, PersonalFN Research)
 

The EV portfolio of Templeton India Value Fund includes auto OEMs such as Tata Motors and Bajaj Auto, and EV charging infrastructure providers such as NTPC, Indian Oil Corporation, Power Grid Corporation, and Bharat Petroleum Corporation.

Apart from this, its portfolio includes Bharat Electronics, an electronic products manufacturer, as well as Exide Industries, an EV battery maker.

#3: Quantum Long Term Equity Value Fund

Categorised as a Value Fund, Quantum Long Term Equity Value Fund was launched in March 2006.

The fund aims to invest in companies that can benefit from the anticipated growth and development of the Indian economy and its markets by following a bottom-up approach to stock picking.

As per its portfolio as of March 31, 2022, Quantum Long Term Value Fund held an equity allocation of nearly 80% in large-caps and about 20% in mid-caps. Some portion was in cash and cash equivalents.

Table 3: Top EV stock holdings of Quantum Long Term Equity Value Fund

Stocks % of Assets
Mahindra & Mahindra Ltd. 3.68
Bajaj Auto Ltd. 3.44
Eicher Motors Ltd. 3.42
Hero MotoCorp Ltd. 3.11
NTPC Ltd. 2.78
Data as of March 31, 2022
(Source: ACE MF, PersonalFN Research)
 

Quantum Long-Term Equity Value Fund holds a compact portfolio of 29 stocks of which around 7 are EV-related accounting for 20.2% of its assets.

The fund's EV portfolio constitutes mainly of auto OEMs such as Mahindra & Mahindra, Bajaj Auto, Eicher Motors, and Hero Motocorp.

Other than these stocks, the fund has exposure to EV charging infrastructure providers such as NTPC and Power Grid Corporation of India, along with battery maker Exide Industries.

#4: Axis Value Fund

Axis Value Fund was launched in September 2021. The fund aims to generate consistent long-term capital appreciation by investing predominantly in equity and equity-related securities by following a value investing strategy.

While following this strategy, Axis Value Fund holds a diversified portfolio. As per its portfolio as of March 31, 2022, it has an allocation of around 64% to large-caps, around 20% to mid-caps, around 9% to small-caps, and the balance in cash and others.

Table 4: Top EV stock holdings of Axis Value Fund

Stocks % of Assets
Tata Motors Ltd. 6.34
Mahindra & Mahindra Ltd. 4.77
Hindalco Industries Ltd. 2.38
Minda Corporation Ltd. 1.99
Bharat Petroleum Corporation Ltd. 1.50
Data as of March 31, 2022
(Source: ACE MF, PersonalFN Research)
 

Axis Value Fund currently has 32 stocks in its portfolio, of which 7 are EV-related. Its EV portfolio currently accounts for about 19.5% of its assets, with names such as Tata Motors and Mahindra & Mahindra as its top allocations.

Further, the fund is invested in auto ancillaries such as Minda Corporation and Suprajit Engineering. The fund also has exposure to EV commodity stocks as well as charging infrastructure stocks such as Hindalco Industries, Bharat Petroleum Corporation, and Tata Power Company.

#5: HDFC Large & Midcap Fund

HDFC Large & Midcap Fund, erstwhile HDFC Growth Opportunities Fund, was launched in February 1994. The fund predominantly invests in large-cap and mid-cap companies and aims to maintain a reasonably diversified portfolio at all times.

As per its portfolio as of March 31, 2022, it has an allocation of around 50% to large-caps, around 36% to mid-caps, around 9% to small-caps, and the balance in cash and others.

Table 5: Top EV stock holdings of HDFC Large & Midcap Fund

Stocks % of Assets
Reliance Industries Ltd. 4.83
Bharat Electronics Ltd. 1.76
NTPC Ltd. 1.62
Tata Motors Ltd. 1.61
Sona BLW Precision Forgings Ltd. 1.50
Data as of March 31, 2022
(Source: ACE MF, PersonalFN Research)
 

HDFC Large & Midcap Fund currently held a large portfolio of 131 stocks, of which around 17 are EV-related. Its EV portfolio currently accounts for about 19.4% of its assets. The fund held higher exposure to charging infrastructure stocks such as Reliance Industries, NTPC, Bharat Petroleum Corporation, Power Grid Corporation of India.

The fund is invested in OEMs and auto ancillaries such as Tata Motors, Sona BLW Prcision Forgings, Bharat Forge, Ashok Leyland, Motherson Sumi Systems, Exide Industries, TVS Motor Company, Mahindra & Mahindra, and Hero MotoCorp. Further, the fund has exposure to other EV-related stocks such as Bharat Electronics, Gujarat Flourochemicls, L&T Technology Services, and Tata Chemicals.

Outlook for the EV sector in India

The central government is aiming to fire up the growth engines of the EV sector through its Faster Adoption and Manufacturing of Hybrid and Electric Vehicles in India (FAME) II policy. This policy aims to incentivise the manufacturers of EVs.

In addition, the government has approved production-linked incentives (PLI) for auto and auto component manufacturers to make India self-sufficient in its goal towards clean mobility.

Some of the factors that could supercharge shift to EVs are rising global fuel prices, the aim to reduce reliance on imports, and the ambitious goal to significantly reduce carbon footprint.

India would stand to benefit from its relative abundance of renewable energy resources plus the availability of skilled manpower in R&D, technology, and manufacturing.

It's likely that many new players will enter the market to ride the EV wave. This will increase competition and make EVs more affordable.

Notwithstanding the current challenges related to semiconductor (chip) shortages and the muted consumption growth amid the pandemic, the EV sector seems to be on the cusp of robust long-term growth.

Mutual funds are one of the best ways to benefit from India's growth story. Just ensure that you select the best and the most suitable mutual fund schemes for your portfolio.

 

Warm Regards,
Divya Grover
Research Analyst



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