Top 5 Mutual Funds with High Exposure to EV Revolution

February 7, 2024 Mutual Fund

As an alternative to internal combustion engines, the Indian electric vehicle (EV) industry is the nation’s newest sunrise industry. This rise in popularity is helping as government regulations are encouraging wider EV adoption to help meet emission targets by 2030.

The once-in-a-century transformation of the electric vehicle (EV) megatrend is taking place in front of us. The popularity of electric vehicles (EVs) as a greener, more effective substitute for conventional gasoline-powered cars has grown significantly in recent years.

With advancements in battery technology, a growing network of charging infrastructure, and increasing consumer demand, EVs have become a viable option for many drivers around the world. Although the EV industry is at a nascent stage in India, it is growing rapidly with the revolution taking the auto sector by storm with all segments ripe for disruption.

India aims to become a manufacturing hub for electric vehicles (EVs) under its ‘Make in India’ initiative. Many businesses have jumped on board to gain popularity before the industry radically transitions from conventional fossil fuels.

According to a report, India’s EV market is currently valued at USD 5.61 billion and is projected to grow to almost USD 150 billion by 2030, with a CAGR of 90%. This might result in staggering profits for EV-related businesses.

The Electric Vehicle boom in India will enable investors holding stocks in EV companies to benefit from their growth potential in the long run. This article elucidates the Indian market for electric vehicles and the EV Stocks in India that investors should be aware of.

What are EV Stocks?

Electric vehicle stocks in India are the stocks you purchase from companies that manufacture and produce electric vehicles (EVs). EV stocks have garnered a lot of attention from investors across the globe.

These stocks represent businesses ranging from the production, sale and distribution of EVs to their component and raw material manufacturers, such as batteries or charging infrastructure. Around 10 companies are dealing in 2-wheelers, 3-4 in the electric bus segment, and very few in the car manufacturing segment.

These are the manufacturers that produce the batteries that are used in electric vehicles. You can watch the top players like Amara Raja Batteries, Exide Industries, Tata Group, Hero Moto Corp, and Maruti Suzuki. You can also check for their names in the electric vehicle stock list.

EV Stocks are unquestionably hot bait for real-time investors looking for a worthy sector/industry with good growth potential to invest in going forward.

[Read: Is It A Good Idea To Invest In An ‘Electric Vehicles Fund’ Now?]

Why invest in EV Stocks?

The automotive sector is a major contributor to India’s economy, accounting for 7.1% of its GDP and providing significant employment.

Today, India is the fifth-largest global automotive market, which includes both ICE (Internal Combustion Engines) and electric vehicles and is predicted to grow to be the third-largest market by 2030. There is now a push for manufacturers and policymakers to collaborate to shift demand towards greener options.

The industry was given a major boost in the 2023-24 Union Budget for the production of electric vehicles, adoption of hydrogen fuel, and embracing changing technologies. Finance Minister Ms Nirmala Sitharaman announced a budget allocation of Rs 35,000 crore for crucial capital investments aimed at achieving energy transition and net-zero targets by 2070.

For electric vehicle manufacturers, the government has already launched initiatives such as the Faster Adoption of Manufacturing of Electric Vehicles Scheme – II (FAME – II) and the Production Linked Incentive Scheme (PLI). The Budget has allocated INR 51.72 billion (approximately $ 631 million) towards its FAME-II scheme to subsidize and promote the adoption of clean energy vehicles.

Electric vehicles are here to stay for a long time, and since our government is pushing hard to shift everyone to EVs, more players will emerge in this sector. The attractive incentives being offered by the Indian government on the production and purchase of electric vehicles to encourage the adoption of electric vehicles are anticipated to drive the growth of the market over the forecast period.

The stringent GreenHouse gas (GHG) emission norms drafted by the government, such as the Bharat Stage (BS) VI emission standards introduced by India’s Ministry of Road Transport and Highways (MoRTH), are also expected to play a decisive role in driving the growth of the EV market in India.

As a result, investors can witness massive growth and opportunities in the EV market space. Given the factors supporting the growth of EV industry, the EV stock prices may rise in future, thus offering significant returns to investors.

According to the experts, now is a suitable time to invest in EV stocks in India.

Many investors, including domestic mutual funds, are looking to benefit from this meteoric rise of electric vehicles in the Indian market. They are investing in stocks in the Indian EV segment. You see, the day is not far away when most of the cars sold in India will be electric.

Consequently, 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 as well.

So, in this paradigm shift to electric mobility, the opportunity to seize the profit is huge and thus many investors are seeking to invest in EV stocks.

Although EV stocks have the potential to deliver huge gains, you should be very careful about which EV stock to invest in.

Investors may simply invest directly in EV stocks on the exchange; however, direct equities are highly risky and not suitable for every investor. Another way to profit from this trend is to invest in mutual funds that are investing in EV stocks.

One may consider looking at some diversified equity mutual funds with high exposure to EV stocks.

Here’s a list of the top 5 mutual funds that are betting big on the future of transportation called Electric Vehicles:

#1 – Bandhan Transportation and Logistics Fund (Thematic Fund)

Launched in October 2022, Bandhan Transportation and Logistics Fund invests in stocks of companies engaged in the transportation and logistics sector in India. The scheme invests across market cap, and as of December 2023, it holds 32.33% allocation in large caps, 31.84% allocation in mid-caps and 33.39% in small caps.

Bandhan Transportation and Logistics Fund – Allocation to EV Stocks

Data as of December 31, 2023
(Source: ACE MF, data collated by PersonalFN Research) 

Bandhan Transportation and Logistics Fund holds maximum exposure of 8.58 % in stocks of Tata Motors Ltd., which is a USD 37 billion organisation, a leading global automobile manufacturer with a portfolio that covers a wide range of cars, SUVs, buses, trucks, pickups and defence vehicles.

The scheme also carries an allocation to some of the best EV stocks in India, like – Hero MotoCorp Ltd., Bosch Ltd., Bharat Forge Ltd., Exide Industries Ltd. etc. Currently, the overall exposure to EV stocks accounts for 28.31% of the scheme’s assets.

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

#2 – ICICI Pru Transportation and Logistics Fund (Thematic Fund)

ICICI Pru Transportation and Logistics Fund is categorised as a thematic scheme that invests in a concentrated portfolio of equity & equity-related instruments of companies engaged in the transportation and logistics sector.

Currently, the scheme holds an AUM of Rs 2572.12 crore. As of December 2023, the fund has a 52.57% allocation in large-cap stocks and 23.75% in mid-cap stocks, whereas 20.63% in small-cap stocks.

ICICI Pru Transportation and Logistics Fund – Allocation to EV Stocks

Data as of December 31, 2023
(Source: ACE MF, data collated by PersonalFN Research) 

The scheme has an overall allocation of 27.59% to EV stocks. The highest exposure is in Tata Motors Ltd. 8.88%. In addition, the scheme has decent exposure to market leaders like Samvardhana Motherson International Ltd., Hero MotoCorp Ltd., and Bharat Forge Ltd.

Launched in October 2022, the scheme does not carry a long performance track record; thus, investors may consider their suitability before investing in this scheme.

#3- Aditya Birla SL Transportation and Logistics Fund (Thematic Fund)

Recently launched in November 2023, Aditya Birla SL Transportation and Logistics Fund invests in securities of companies following transportation and logistics theme. The fund has exposure of 52.66% in large-cap stocks, 27.34% in mid-cap stocks, and 6.59% in small-cap stocks.

Aditya Birla SL Transportation and Logistics Fund – Allocation to EV Stocks

Data as of December 31, 2023
(Source: ACE MF, data collated by PersonalFN Research) 

The overall allocation to EV stocks is around 26.51%, and the highest is in stocks of Tata Motors Ltd. 11.75%. The scheme also holds a fair exposure to other EV stocks and currently has an AUM of Rs 926.87 crore.

#4 – UTI Transportation & Logistics Fund (Sectoral Fund)

UTI Transportation and Logistics Fund invest predominantly in a portfolio of stocks of companies engaged in the transportation and logistics business. The scheme currently has an AUM of Rs 2752.60 crore and is benchmarked against NIFTY 50 TRI.

UTI Transportation and Logistics Fund – Allocation to EV Stocks

Data as of December 31, 2023
(Source: ACE MF, data collated by PersonalFN Research) 

The scheme invests across the market cap, and as of December 2023, it holds 61.79% allocation in large caps, 26.21% allocation in mid-caps and 6.44% in small caps. UTI Transportation and Logistics Fund holds maximum exposure in EV stocks like – Tata Motors Ltd. at 12.24% and Hero MotoCorp Ltd. at 5% (leading companies from the EV sector). Currently, the overall exposure to EV stocks accounts for 24.65% of the scheme’s assets.

#5- HDFC Defence Fund (Thematic Fund)

Launched in June 2023, the scheme endeavours to create a portfolio substantially constituted of equity and equity-related securities of Defence & allied sector companies. Do note that the scheme is new in the market and does not carry a long performance track record; thus, investors may consider their suitability before investing in this scheme.

Although the scheme focuses on stocks from the defence sector it holds a decent allocation to the EV stocks.

HDFC Defence Fund – Allocation to EV Stocks

Data as of December 31, 2023
(Source: ACE MF, data collated by PersonalFN Research) 

In terms of EV stocks, HDFC Defence Fund holds an overall exposure of around 17.63% in Bharat Electronics Ltd. As of December 2023, the fund has a 38.48% allocation in large-cap stocks and 9.02% in mid-cap stocks, whereas 51.33% in small-cap stocks.

Bear in mind it has a high exposure to small-cap stocks, which are sensitive to price fluctuations and thus investors may consider their risk profile before investing in this scheme.

The overall allocation to EV stocks is around 12.84%, and the highest is in stocks of Bharat Electronics Ltd. The scheme also holds a fair exposure to other EV stocks and currently has an AUM of Rs 713.94 crore.

Outlook of the Indian Electric Vehicle Industry

Climate change is the main factor causing people to switch to electric automobiles. India is ranked 168 out of 180 in terms of air quality, according to the Environmental Pollution Index (EPI). To address this issue, the government has promoted the usage of electric cars and plans to achieve complete electrification by 2030.

Because of this, it has also sparked a rise in EV adoption, which has started to shift customer preferences.

Approximately 9,89,000 EVs were registered with regional transport offices in 2022 alone, according to statistics from the government’s Vahan website, representing a more than threefold increase from 2021. These numbers demonstrate that EVs may very well end up becoming the standard for cars in the future.

Prominent Indian automakers like Tata Motors and Mahindra & Mahindra have started making EVs, while several international companies have also entered the market. India is a potential competitor in the competition for the Swedish luxury manufacturer Volvo Cars to establish a new electric vehicle production site outside of China.

As more charging stations are installed, the infrastructure for charging is being increased thanks to investments from both the public and commercial sectors. EESL launched the first EV charging plaza in the country in July 2020, and in that time, the number of charging stations has increased by more than five times.

India’s EV sector includes electric two-wheelers (E2Ws), electric three-wheelers (E3Ws), electric four-wheelers (E4Ws) and electric buses (E-Bus). India is one of the world’s fastest-growing markets for Electric Two-Wheelers (E2Ws). Several brands including Ola Electric, Ather Energy, TVS, and others have come up with the E2Ws segment in the country.

Apart from this, the demand for electric vehicles (EVs) has increased among e-commerce companies and consumer goods manufacturers as compared to the last year. To lower fixed-income operational and logistics costs, companies are turning more and more of their attention towards electric commercial vehicles.

Among the companies switching to electric vehicles are Flipkart, BigBasket, Bisleri, Zomato, Amul, Amazon, Hindustan Unilever, Swiggy, and Coca-Cola. Sales of E2Ws and cars are anticipated to increase dramatically, over 100,000 electric cars and nearly a million electric two-wheelers are predicted to be sold this fiscal year, up from roughly 50,000 electric cars and 727,000 electric two-wheelers sold in FY 2022-23.

Thus, the market for electric vehicles in India is expected to increase significantly during the next several years. The nation is ideally situated to make the switch to a more sustainable and environmentally friendly form of transportation thanks to supporting government legislation, rising consumer awareness, and technological breakthroughs. The opportunity for both domestic and global businesses to participate in and support the expansion of India’s EV ecosystem is enormous as the demand for EVs rises.

To conclude…

All things considered, it is projected that the EV industry will keep growing, making it a beneficial investment choice for individual investors seeking long-term capital growth. Investors can gain exposure to this industry’s development potential by indirectly investing in EV stocks via mutual funds.

However, before investing it is important to run a detailed analysis of the holding EV-producing and manufacturing companies and performance of the mutual fund schemes. Also, one must ensure their suitability to the mutual fund schemes with a high allocation to EV stocks based on their risk appetite, investment horizon and objectives.

This article first appeared on PersonalFN here