Birla Sun Life Manufacturing Equity Fund

An open-ended equity scheme with the primary objective of investing in equities of companies engaged in the manufacturing activities.

Summary

Type	An open–ended Manufacturing Sector Fund	Benchmark Index	S&P BSE 500
Min. Investment: Additional purchase:	Lumpsum : Rs 5,000 and in multiples of Re 1 thereafter For Systematic Investment Plan (SIP)* : Rs 1,000 (subject to minimum 6 instalments of Rs 1,000 each) *During the NFO period the fund house will not accept SIP with post-dated cheques. Rs 1,000 and in multiples of Re 1 thereafter	Plans: Options (under each plan):	Direct Regular   Dividend (Re-investment and Payout) Growth
Face Value	Rs 10 per unit	Expense Ratio:	Upto 2.50%*
Entry Load	Nil	Exit Load:	1.50% for redemption / switch-out of units within 365 days from the date of allotment of units 1.00% for for redemption / switch-out of units after 365 days but within 540 days from the date of allotment of units Nil for redemption / switch-out after 540 days from the date of allotment of units
Issue Opens	January 13, 2015	Issue Closes:	January 27, 2015

*Direct Plan shall have a lower expense ratio excluding distribution expenses, commission, etc. and no commission for distribution of Units will be paid / charged under Direct Plan. The Maximum total expense ratio for the Direct Plan as permissible under Regulation 52(6)(c)(i) will not exceed 2.00% p.a. of daily net assets of the Scheme.

Investment Objective*

The investment objective of the scheme is "to generate long-term capital appreciation to unit holders from a portfolio that is invested predominantly in equity and equity related securities of companies engaged in Manufacturing activity. The scheme does not guarantee / indicate any returns. There can be no assurance that the schemes’ objectives will be achieved."

*Source: Scheme Information Document

Is this fund for you?

Birla Sun Life Manufacturing Equity Fund (BSMEF) is positioned as an open-ended equity scheme with the primary objective of investing in equity & equity related securities of companies engaged in the manufacturing activities. The manufacturing sector companies comprises of activities related to manufacturing process, repairs services, gas and water supply and cold storage. It is noteworthy that as per the National Industrial Classification 2004, the manufacturing sector comprises of 22 sectors which includes sectors such as pharmaceuticals, engineering, consumer, auto, refiners, cement and metals, amongst host of others.

You see, BSMEF aims to capitalise on the "Make in India" campaign launched by the Modi-led-NDA Government. "Make in India" is a major national programme designed to:
 

• Facilitate investment in the country;
• Foster innovation;
• Enhance skill development;
• Protect intellectual property; and
• Build best-in-class manufacturing infrastructure
   

It is targeted across 25 sectors right from textiles & garments, leather tourism & hospitality to the highly capital intensive ones; intended at taking India on the path to long-term economic growth. The new initiative is expected to provide supportive environment to manufacturers and instil positivity as India aims to raise share of manufacturing in Gross Domestic Product (GDP) from about 16% at present, to 25% of GDP by 2022. And for achieving this, new processes have been envisaged; wherein there have been plans of developing and promoting manufacturing cities. Likewise the focus on labour reforms by the Government could enable flexibility and skill development.

At present the fact is, that as far as ease of doing business in India is concerned, the Word Bank ranks India at 142nd position in the list of 189 countries considered for analysis. India is way behind the other BRIC nations. India is yet dependant on imports, and the list runs long from gold to defence equipment. And mind you, there is a connection between India's huge imports and its lack of competence in providing businesses supportive environment for doing business. But now that Mr Narendra Modi is at the helm, there are expectations that India’s ranking on ease of doing business would improve. Yes, there are efforts being taken to do away with bureaucratic impediments and introduce e-governance; but it won’t easy to walk the talk for the Government.

This therefore would expose BSMEF to very high risk. Also amid times when the Indian equity market recently clocked an all-time high, portfolio construction could be challenging task as the trail P/E of the market is near stretched levels (at about 21.2 calculated on trail earnings). This in effect reduces the margin of safety at the time of the launch, and therefore before investing one's hard earned money, it would be imperative to take into account his / her risk appetite and risk tolerance.

Portfolio & Investment Strategy

BSMEF in its aim to meet its investment objective will be investing a predominant portion of its assets in equity & equity related securities of companies engaged in the manufacturing sector. The companies selected will be analysed taking into account the business fundamentals such as:
 

• Nature of the business
• Stability of the business
• Prospects of future growth and scalability
• Financial discipline and returns
• Valuations in relation to broad market and expected growth in earnings
• Company’s financial strength and track record
   

So given that the BSMEF is a thematic fund it appears that a top-down approach to stock picking would be followed.

To manage its liquidity requirements BSMEF may also invest a small portion of its corpus in money market instruments.

The asset allocation which will be followed by the fund will be as under:
 

Instruments	Allocation Range (%)		Risk Profile High/Medium/Low
	Minimum	Maximum
Equity & Equity related securities of Manufacturing Sector Companies	80	100	High
Cash, Money Market & Debt instruments	0	20	Low

Notes: The scheme may also invest upto 50% of net assets in derivative instruments subject to provision specified by a SEBI circular. Likewise, the scheme may also invest upto 30% of the Debt allocation in securitized debt instruments except foreign securitized debt.

(Source: Scheme Information Document)

BSMEF will benchmark its performance to the S&P BSE 500 Index, which is a broad-based index and since its composition broadly represents the scheme’s investment universe.

Fund Manager Profile

BSMEF will be managed by Mr Anil Shah who has over 25 year of experience in equity research and investment. Prior to joining Birla Sun Life Mutual Fund, Mr Shah has worked with RBS Equities (India) Ltd. (formerly known as ABN AMRO Asia Equities (India) Ltd.) for around 15 years. By qualifications, Mr Shah is a commerce graduate (B.Com) and is also a Chartered Accountant as well as a Cost Accountant.

At Birla Sun Life Mutual Fund, Mr Shah also manages Birla Sun Life Equity Fund, Birla Sun Life GenNext Fund, Birla Sun Life Special Situations Fund and Birla Sun Life Focused Equity Fund - Series 1

Fund Outlook

While BSMEF aims to tap opportunities in the manufacturing sector companies riding on the "Make in India" national programme announced by the Modi-led-NDA Government, the fortune of the fund will be hinged on the India’s manufacturing story pans out in the backdrop of the efforts which the Government takes and even how trade unions react to labour reforms. Moreover, until the time interest rates in the country remain elevated, policies framed are not conducive and importing remains a cheaper option; challenges remain to the "Make in India" programme.

As mentioned earlier, the launch of BSMEF has come at a time when valuations seem stretched in the upbeat sentiment of the Indian equity market, where the trail P/E of CNX Nifty is floating over the mark of 21.0. Hence, portfolio construction can be a challenging task.

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