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  • Aug 20, 2023 - Top 5 Mutual Funds with High Allocation to Chemical Stocks

Top 5 Mutual Funds with High Allocation to Chemical Stocks

Aug 20, 2023

Top 5 Mutual Funds with High Allocation to Chemical Stocks

Chemical Industry is one of India's most significant and rapidly expanding industries and plays a crucial role in the growth of nation's economy. It provides several building blocks and raw materials for various industries, including textiles, paper, paints, soap and detergents, pharmaceuticals, and agrochemicals. Over 80,000 commercial chemical products are produced in India, and they may be roughly categorised as bulk chemicals, speciality chemicals, agrochemicals, petrochemicals, polymers, and fertilisers. India possesses an impressive position ranking 3rd in the Asian region and 6th largest chemical producer globally.

The Indian chemical industry remained resilient in the previous year of 2022 in the face of major global obstacles and has changed gears in the correct direction to become a notable global player. The value of India's chemical sector stocks has expanded significantly in recent years as a result of increasing government activities and growing demand for chemicals across multiple sectors. The chemical business is a major contributor to many key industries, including agriculture, oil, and others; hence chemical sector stocks are in high demand.

What Are Chemical Stocks?

'Chemical Stocks' refers to the stock of companies engaged in manufacturing and selling chemicals. These companies could make speciality chemicals, agrochemicals, petrochemicals, and other kinds of chemicals. The chemical industry is a large and diversified sector of the economy that generates a wide range of goods, including both speciality and basic chemicals.

Since chemical sector in India is one of the largest contributors to the country's GDP, contributing a whopping 7%, investing in chemical companies can present considerable prospects for development and returns.

How to Invest in Chemical Stocks through Mutual Funds?

Due to its volatility and risk, investing in direct stocks is not necessarily a good idea for every individual. Here's where mutual funds come into play. Many investors who are keen on investing in a particular sector or stocks of a specific theme, may consider investing indirectly in their preferred stocks like 'Chemical Stocks' via mutual funds.

Although mutual funds are usually considered as being less volatile than stocks, it is important to keep in mind that all market-linked investments are subject to some degree of risk and can lose value if the overall market declines or any of the sectors to which they have a higher exposure goes out of favour. Let us take a deeper look into which mutual fund scheme carries a high exposure to chemical stocks.

This article will evaluate the top mutual funds to invest in 2023 that have a high allocation to chemical stocks in India:

#1 - Tata Resources & Energy Fund (Sectoral Fund)

Tata Resources & Energy Fund invests in stocks of the companies under the Resources & Energy sectors in India. The scheme invests across market cap, and as of July 2023, it holds 55.14% allocation in large caps, 29.32% allocation in mid-caps and 10.64% in small caps.

Tata Resources & Energy Fund - Allocation to Chemical Stocks

Stocks Holding %
PI Industries Ltd. 4.38
Paradeep Phosphates Ltd. 2.93
Sumitomo Chemical India Ltd. 2.43
Navin Fluorine International Ltd. 2.19
Coromandel International Ltd. 2.11
Deepak Nitrite Ltd. 2.08
SRF Ltd. 1.96
UPL Ltd. 1.28
Chemcon Speciality Chemicals Ltd. 1.03
Data as of June 30, 2023 (Source: ACE MF)

Tata Resources & Energy Fund holds maximum exposure in stocks of PI Industries Ltd., which is a well-established agrochemical and speciality chemicals company (with a market cap of Rs 55,514.76 crores). It also carries an allocation to some of the best chemical stocks in India, like - Navin Fluorine International Ltd. and Deepak Nitrite Ltd. Currently, the overall exposure to chemical stocks accounts for 20.42% of the scheme's assets.

#2 - SBI Magnum Comma Fund (Thematic Fund)

SBI Magnum Comma Fund invests predominantly in a portfolio of stocks of companies engaged in commodity and commodity-related businesses. It was launched on 04-Jan-2013 and currently has an AUM of Rs 451.55 crore. SBI Magnum Comma Fund is benchmarked against NIFTY Commodities - TRI.

SBI Magnum Comma Fund - Allocation to Chemical Stocks

Stocks Holding %
Neogen Chemicals Ltd. 5.34
PI Industries Ltd. 5.07
Aether Industries Ltd. 3.65
Paradeep Phosphates Ltd. 2.4
Archean Chemical Industries Ltd. 1.74
Data as of June 30, 2023 (Source: ACE MF)

The scheme invests across the market cap, and as of July 2023, it holds 44.97 % allocation in large caps, 18.29% allocation in mid-caps and 31.51% in small caps. SBI Magnum Comma Fund holds maximum exposure in chemical stocks of Neogen Chemicals Ltd. and PI Industries Ltd. (leading companies from the chemical sector). Currently, the overall exposure to chemical stocks accounts for 18.23% of the scheme's assets.

#3 - Axis Focused 25 Fund (Equity-Focused Fund)

Launched in 2013, Axis Focused Fund is categorised as a focused scheme that invests in a concentrated portfolio of equity & equity-related instruments of up to 25 companies. As of July 2023, the fund has 84.66% investment in domestic equities, of which 72.61% is in Large Cap stocks and 11.54% is in Mid Cap stocks. The fund has a 0.96% investment in Debt in Government securities.

Axis Focused 25 Fund - Allocation to Chemical Stocks

Stocks Holding %
Pidilite Industries Ltd. 7.18
PI Industries Ltd. 3.55
Asian Paints Ltd. 2.73
Data as of June 30, 2023 (Source: ACE MF)

Axis Focused 25 Fund has an overall allocation of 13.47% to chemical stocks. The highest exposure is in Pidilite Industries Ltd., established in 1959. It has been a pioneer in consumer and specialty chemicals in India. The company is a leading manufacturer of adhesives and sealants, construction chemicals, craftsmen products and polymer emulsions in India. In addition, the scheme has decent exposure to market leaders like PI Industries Ltd. and Asian Paints Ltd.

#4 DSP Midcap Fund (Equity - Midcap Fund)

The scheme endeavours to create a portfolio substantially constituted of equity and equity-related securities, which are a part of the top 101-250 stocks by market capitalisation. It predominantly invests in mid-cap stocks of leading companies across sectors/industries.

DSP Midcap Fund - Allocation to Chemical Stocks

Stocks Holding %
Atul Ltd. 3.5
Coromandel International Ltd. 3.22
Tata Chemicals Ltd. 2.27
Chambal Fertilisers and Chemicals Ltd. 1.59
Dhanuka Agritech Ltd. 1.07
Jubilant Ingrevia Ltd. 0.74
Data as of June 30, 2023 (Source: ACE MF)

In terms of chemical stocks, DSP Midcap Fund holds an allocation of around 3% each in Atul Ltd. and Coromandel International Ltd. The fund also has exposure to a few other chemical business-oriented companies. These stocks form around 12.42% of the fund's assets.

#5 NJ ELSS Tax Saver Scheme (ELSS)

Recently launched in June 2023, NJ ELSS Tax Saver Scheme is a tax-saving mutual fund that invests across market cap with a statutory lock-in of 3 years. This is a newly introduced scheme by NJ Mutual Fund, adding to its existing product basket of equity-oriented mutual funds.

NJ ELSS Tax Saver Scheme - Allocation to Chemical Stocks

Stocks Holding %
Asian Paints Ltd. 3.96
Coromandel International Ltd. 3.93
Solar Industries India Ltd. 3.8
Data as of June 30, 2023 (Source: ACE MF)

NJ ELSS Tax Saver Scheme holds 99.9% exposure to equities, of which 42.78% is in large caps, 35.78% is in midcaps, and 21.33% is in small caps. The overall allocation to chemical stocks is around 11.70%, and the highest is in stocks of Asian Paints Ltd. (considered a market leader in the Indian paint industry and is engaged in the manufacture of chemicals viz. Pentaerythritol, Sodium Formate and Formaldehyde.)

[ Read: Why ELSS Is Your Best Choice to Build Wealth and Save Tax]

Do note that the scheme is new in the market and does not carry any proven performance track record; thus, investors may consider their suitability before investing in this ELSS.

Outlook of the Indian Chemical Industry

The need for chemicals is always increasing since they are used in so many different sectors of the economy, including building, transportation, and agriculture. Speciality chemical producers in India are increasing their production capacity to meet the increased domestic and international demand. The chemical industry in India has the potential for enormous expansion as multinational corporations want to de-risk their supply chains, which are dependent on China.

Globally, India is the fourth-largest producer of agrochemicals, behind China, Japan, and the United States. To encourage domestic agrochemical production, the Government intends to implement a production-linked incentive (PLI) system. The Department of Chemicals and Petrochemicals received funding from the Government of Rs 173.45 crore ($20.93 million) during the Union Budget 2023-24.

Overall, the chemical sector is expanding rapidly and there is a significant demand for chemicals across a variety of industries, including food processing, pharmaceuticals, construction, automotive, and others. The sizeable US$ 220 billion Indian chemical sector is expected to rise to US$ 300 billion by 2025 and US$ 1 trillion by 2040.

Despite the increasing demand and expanding chemical industry, it is still not as advanced as its rivals in other parts of the world. And the industry can take time to become a global leader.

To summarise...

Due to increasing demand and prospects, India's chemical stock lists have recently shown significant growth potential. All things considered, it is projected that India's chemical sector will keep growing, making it a beneficial choice for individuals looking for long-term capital growth and investment in the best chemical stocks in the country.

[ Read: How to Choose Mutual Funds For Your Investment Portfolio]

Investors can gain exposure to this industry's development potential by indirectly purchasing chemical stocks via mutual funds. However, before investing it is important to run a detailed analysis of the holding chemical companies and performance of the mutual fund schemes.

This article first appeared on PersonalFN here

Disclaimer: Investment in securities market are subject to market risks, read all the related documents carefully before investing.

This article is for information purposes only and is not meant to influence your investment decisions. It should not be treated as a mutual fund recommendation or advice to make an investment decision.

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