Auto: Auto at cusp of a rebound makes logistics a good turnaround bet – Blue Barrows

Mumbai: High-risk takers looking to bet on a thematic domestic consumption story could make a lump sum allocation to transportation and logistics funds. Asset managers believe the current market presents a good entry point as the auto sector is at a cyclical bottom and is expected to post the highest earnings growth among peers as the cycle turns.

The Nifty Transportation & Logistics Index has outperformed key indices in eight out of the past 11 years, and underperformed in the last three years, presenting a good entry point.

UTI Transportation and Logistics Fund, the only actively managed fund in the space, is one of the best-performing equity schemes in the past year, gaining 11.2%, compared with the Nifty 50 which lost 3.4%. Eyeing the opportunity, new fund offerings (NFOs) of

Transportation and Logistics Fund and Transportation and Logistics Fund have been launched. They will close on the 18th and 20th of October, respectively.


The auto sector has lagged behind the broader markets in the past five years with the S&P BSE Auto Index gaining 2.81% compared with the S&P BSE Sensex gaining 12.35%. Over the past year, the S&P BSE Auto Index is up 8.79% compared with the S&P BSE Senex which lost 4.72%.

Fund managers believe the current uptick in the auto sector is just the beginning of the rally.

“The auto sector is estimated to post the highest earnings growth over the next two years among peers driven by a strong demand-led cyclical recovery. The resulting operating leverage and lower commodity prices should result in margin improvement thus providing visibility for strong earnings growth for the transportation and logistics sector,” said Daylynn Pinto, fund manager, IDFC MF.

“Auto has a positive correlation to GDP growth. As the economy recovers, the sector should see higher pent-up demand and replacements. Also, sector-specific issues like chip shortage, emission norm changes, insurance cost hikes etc. are behind us and commodity prices too are easing,” said Harish Bihani, senior fund manager, ICICI Prudential MF.

Financial planners believe that in thematic funds where there is a sharp turnaround, investors could go for a lumpsum allocation at 5-10% of their portfolio. Besides, being a thematic fund, portfolios of all schemes could have overlaps.

Investors could opt for UTI Transportation and Logistics, which has an 18-year track record and wait for the IDFC and ICICI funds to build a track record, said Rupesh Bhansali, head (distribution), GEPL Capital.