Kotak AMC’s Business Cycle Fund Aims for All-Weather Stability, NFO Begins Sept. 7: Know the Details

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Kotak Mahindra Asset Management Company Ltd (KMAMC) is about to launch a new fund offering (NFO) for its Kotak Business Cycle Fund. This open-end mutual fund targets companies and sectors that can withstand economic cycles or market ups and downs.

The NFO will open for public subscription on September 7 and will close on September 21. Announcing the fund to the press on Monday, the fund house said the business cycle-focused program would invest in stocks of companies and sectors that can navigate any situation.

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

The fund, he said, would take into account all economic metrics, including GDP growth, current account deficit, corporate earnings growth trends, inflation, and more. In addition, it will consider investments and economic indicators, such as investment, capacity utilization, credit growth, business confidence index, purchasing managers index, etc., before to invest in stocks.

Nilesh Shah, Group Chairman and Managing Director of KMAMC, expressing his confidence in the program said: “There are stocks in all categories, which tend to perform better at different stages of the business cycle.” These companies, he said, have managed to perform well in various economic parameters, even during tough times like the economic downturn. To identify economic cycles and sector opportunities, the fund plans to follow a top-down approach to portfolio construction.

“The portfolio will therefore focus on a few selected sectors that are likely to perform well in a particular economic cycle. Thereafter, a bottom-up approach will be followed to identify strong companies in these sectors,” said Harsh Upadhyaya, Chairman and Head of Kotak Equity Funds.
Upadhyaya said the fund would use a combination of factors, including the BMV framework, or company management and ratings, to select companies in these sectors.

Explaining the concept, Upadhyaya said that “at an early stage of the economy, cyclical and rate-sensitive stocks tend to outperform, including metals, power, infrastructure, capital goods, etc. In the middle of the cycle, growth slows and sectors such as energy, industrials and banks could continue to do well. Late in the cycle, or in the contraction phase, sectors that typically generate high free cash flow such as fast-moving consumer goods, information technology and pharmaceuticals tend to outperform.

Seize growth opportunities

The Indian market has recently seen a flurry of new fund offerings, boosted by the rapidly improving economy following the Covid-19-induced slowdown. Fund companies like Mirae Asset Mutual Fund, ICICI Prudential Mutual Fund, Edelweiss Asset Management Limited, WhiteOak Capital Mutual Fund, etc., have recently launched NFOs.

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