5 Best Mutual Fund Types to Benefit During Modi’s Third Term

June 7, 2024 Mutual Fund

The BJP-led NDA government has secured another term following the 2024 general election, setting the stage for Narendra Modi to be sworn in as Prime Minister for a third consecutive time on Sunday evening, June 9, 2024.

Despite an initial dip in the markets due to the election results, a swift recovery has been observed. The next five years are expected to bring prosperity, with several mutual fund categories expected to flourish during Modi’s third term.

Before we dive into the mutual funds likely to benefit from Modi 3.0, let’s take a moment to recap the key achievements of the Modi-led NDA government’s first and second terms.

Since coming to power in 2014, the Modi government has implemented a range of policies aimed at infrastructure development, economic reforms, and social welfare schemes. This progressive agenda has significantly impacted various sectors of the Indian economy. If this momentum continues, certain segments of stocks and mutual funds are poised to benefit greatly.

So, let’s dive in and explore the five different categories of mutual funds that could see substantial gains during Modi 3.0.

But before we discuss the mutual funds, let’s briefly highlight some of the key achievements of the BJP-led NDA government since 2014…

Achievements of the BJP-led NDA Government Since 2014

1. Infrastructure Development: The government’s major initiatives such as the Bharatmala Pariyojana, the Sagarmala project, and the Smart Cities Mission have transformed the infrastructure landscape of India. These projects focus on enhancing road and port connectivity, urban development, and overall infrastructure modernisation.

2. Economic Reforms: The introduction of the Goods and Services Tax (GST) has streamlined the taxation system, making it more transparent and efficient. The Insolvency and Bankruptcy Code (IBC) which governs insolvency and bankruptcy proceedings for companies, partnership firms, and individuals has helped resolve bad loans and improve the financial health of banks.

3. Digital India Initiative: The Digital India campaign which aims to transform India into a digitally empowered society and a knowledge economy, has significantly boosted internet connectivity and digital literacy across the country. Programs like BharatNet have aimed to connect rural India with high-speed internet.

4. Social Welfare Schemes: The government’s schemes like Pradhan Mantri Jan Dhan Yojana, Ayushman Bharat, and PM-Kisan have provided financial inclusion, healthcare benefits, and income support to millions of citizens.

5. Make in India: Further, the initiative like ‘Make in India’ has encouraged domestic manufacturing and attracted foreign investments, boosting job creation and economic growth.

6. Renewable Energy Push: The BJP-led NDA government has also set ambitious targets for renewable energy, particularly solar and wind power, contributing to sustainable development.

7. Financial Inclusion: Through schemes like the Pradhan Mantri Mudra Yojana, the government has promoted entrepreneurship by providing easy access to credit for small businesses.

…And there are many more like these.

With these achievements as a backdrop, let’s explore the mutual funds that stand to gain during Prime Minister Modi’s third term or Modi 3.0.

1. Infrastructure Funds

In its previous term, the Modi government prioritised infrastructure development through projects like Bharatmala Pariyojana and Sagarmala, which aim to enhance road and port connectivity, respectively. Bharatmala focuses on improving highways and reducing logistics costs, while Sagarmala aims to modernise ports and boost maritime trade.

Continued investment in infrastructure is expected, creating economic opportunities and benefiting companies in construction and related industries. This positive outlook bodes well for mutual funds focusing on the infrastructure sector, offering attractive long-term investment opportunities.

Here are some of best performing Infrastructure Funds:

a. HDFC Infrastructure Fund

HDFC Infrastructure Fund is one of the top-performing funds in this category. The fund invests primarily in infrastructure-related companies, including those involved in engineering, power, and mining, along with substantial allocation to banking & finance that provide financial support to infrastructure development activities. It has delivered strong returns in the past, outperforming its benchmark by a substantial margin.

The fund’s portfolio includes major holdings in companies like Larsen & Toubro, NTPC, J Kumar Infraprojects, Kalpataru Projects, and GR Infraprojects, which are well-positioned to benefit from ongoing infrastructure projects. It has also invested in top banks like ICICI, HDFC, and SBI. With a robust track record and a focus on sectors likely to benefit from government policies, this fund is well-positioned for long term growth.

Portfolio Holdings as of April 30, 2024; Source: ACE MF

b. ICICI Prudential Infrastructure Fund

Another strong contender in this segment is the ICICI Prudential Infrastructure Fund. This fund invests in companies across infrastructure and its various sub-sectors such as power, oil & gas, cement, auto, and financial. Over the past few years, the fund has shown impressive performance, with significant returns driven by strategic investments.

Its portfolio is diversified with top holdings in companies like NTPC, Larsen & Toubro, Kalpataru Projects, NCC Ltd., Grasim Industries, Gujarat Gas, and so on. It also has ICICI Bank and HDFC Bank among its top holdings, ensuring a balanced exposure to the infrastructure and related sectors. With a diversified portfolio and strategic investments aligned with government initiatives, it offers a promising investment opportunity for investors looking to benefit from the infrastructure boost.

Portfolio Holdings as of April 30, 2024; Source: ACE MF 

c. Quant Infrastructure Fund

Quant Infrastructure Fund is also noteworthy. This fund aims to identify lucrative investment opportunities in the wide infrastructure segment and focuses on companies that are directly or indirectly involved in infrastructure development. It has developed a solid track record of outperformance, reflecting its superior investment approach.

Currently, the fund’s portfolio includes holdings in key infrastructure and related companies such as Adani Power, IRB Infrastructure Developers, Kalyani Steels, Steel Authority Of India, Bharat Electronics, Tata Power, Swan Energy, NCC, GAIL, Jindal Steel and Power, BHEL, and so on, leveraging their expertise in the engineering and construction space to identify lucrative investment opportunities. It also holds names like Reliance Industries, Kotak Mahindra Bank, and JIO Financial Services among its top holdings.

Portfolio Holdings as of April 30, 2024; Source: ACE MF 

2. Banking and Financial Services Funds

A progressive government focused on economic reforms is likely to continue supporting the banking and financial services sector. Key reforms, such as the Insolvency and Bankruptcy Code (IBC) and the recapitalisation of public sector banks, have already strengthened this sector by addressing non-performing assets and enhancing lending capacity.

Further reforms and sustained economic growth are expected to benefit the sector, including advancements in digital banking and financial inclusion. As the economy expands, demand for financial services will rise, creating new opportunities for banks and financial institutions.

Overall, continued government support and economic growth will ensure the strength of the banking and financial services sector, benefiting related banking and financial services sector funds.

Here are some of best performing Banking and Financial Services Funds:

a. SBI Banking & Financial Services Fund

SBI Banking & Financial Services Fund is one of the top performers in this sector. It invests in a diversified portfolio of Banks, NBFCs, and insurance companies. The fund has been able to deliver strong returns and outperform its peers.

Its portfolio includes major holdings in ICICI Bank, HDFC Bank, Kotak Mahindra Bank, and SBI, along with NBFCs and insurance companies like Muthoot Finance and SBI Life Insurance Company which are poised to benefit from ongoing economic reforms and growth in the financial sector. The fund’s strategic allocation and focus on quality stocks make it a strong candidate for future growth.

Portfolio Holdings as of April 30, 2024; Source: ACE MF 

b. Invesco India Financial Services Fund

Invesco India Financial Services Fund is another excellent choice. The fund has a significant portion of its assets invested in leading banks and financial institutions, which are poised to benefit from continued economic reforms and growth. It has shown superior performance over the years, with a portfolio comprising top holdings in banks like ICICI Bank, SBI, Axis Bank, and HDFC Bank. It also holds exposure to financial institutions like BSE and MCX. The fund’s noticeable outperformance over its benchmark and expert management makes it a reliable option for long-term growth.

Portfolio Holdings as of April 30, 2024; Source: ACE MF 

c. Nippon India Banking & Financial Services Fund

Nippon India Banking & Financial Services Fund offers a well-diversified portfolio with a strong emphasis on the financial sector. The fund’s focus on quality financial stocks and its alignment with government policies aimed at strengthening the financial sector make it a prudent investment. Its portfolio includes significant holdings in stocks of top banks like HDFC Bank, ICICI Bank, Axis Bank, SBI, Kotak Mahindra Bank, and The Federal Bank, and also holds financial services like SBI Life Insurance Company, ICICI Prudential Life Insurance Company, and SBI Cards And Payment Services among its top holdings, which have contributed to its strong performance.

Portfolio Holdings as of April 30, 2024; Source: ACE MF 

3. Consumption Funds

Driven by economic development and rising incomes, consumer spending in India is expected to grow significantly. Higher incomes increase purchasing power, boosting demand for goods and services. The Modi government’s focus on economic reforms and job creation further enhances this trend by improving the business environment and increasing employment opportunities, leading to higher disposable incomes.

As a result, consumption funds are likely to benefit from these positive economic trends, with increased sales and profitability in the consumer goods and retail sectors driving attractive returns for investors.

Here are some of best performing Consumption Funds:

a. ICICI Prudential Bharat Consumption Fund

ICICI Prudential Bharat Consumption Fund invests in fast-moving consumer goods (FMCG) and consumption driven companies that are well-positioned to capitalise on increased consumer spending. The fund has delivered strong returns in the past, driven by strategic investments in leading FMCG companies.

Its portfolio includes top holdings in FMCG companies like Hindustan Unilever, ITC, and Dabur India, along with consumption-driven and retailing entities like Avenue Supermarts, TVS Motor Company, Maruti Suzuki India, Bharti Airtel, Asian Paints, and so on, which are expected to benefit from the growing demand for consumer goods.

Portfolio Holdings as of April 30, 2024; Source: ACE MF 

b. SBI Consumption Opportunities Fund

SBI Consumption Opportunities Fund focuses on companies that are expected to benefit from rising consumer demand. This includes sectors such as FMCG, consumer durables, automobiles, hospitality, alcohol, textile, retailing, and telecom, which are well-positioned to capitalise on increased consumer spending.

The fund has shown impressive performance, with a portfolio that currently includes major holdings in companies like Bharti Airtel, Ganesha Ecosphere, Chalet Hotels, ITC, Bajaj Auto, EIH Ltd., Blue Star, United Spirits, Jubilant FoodWorks, and so on. The fund’s strategic investments and focus on consumer-driven sectors make it a strong candidate for growth.

Portfolio Holdings as of April 30, 2024; Source: ACE MF 

c. Nippon India Consumption Fund

Nippon India Consumption Fund targets companies that are likely to benefit directly or indirectly from domestic consumption led demand. This includes sectors such as FMCG, consumer durables, automobiles, retailing, telecom, alcohol, and so on. The fund has a strong track record of performance, with a portfolio comprising top holdings in companies like Bharti Airtel, ITC, Maruti Suzuki India, Hindustan Unilever, Avenue Supermarts, Godrej Consumer Products, United Breweries, Mahindra & Mahindra, etc. The fund’s emphasis on growth-oriented sectors positions it well for future gains.

Portfolio Holdings as of April 30, 2024; Source: ACE MF 

4. Technology Funds

India’s technology sector has grown significantly, driven by digital transformation and increased technology adoption. The Modi government’s initiatives, like Digital India, have enhanced digital infrastructure, services, and literacy. Other programs such as Make in India and Startup India have also fostered technological innovation and entrepreneurship.

Efforts in digital payments, data privacy, and cybersecurity have further boosted tech adoption. The sector has seen growth in IT services, software development, e-commerce, fintech, and digital entertainment. Emerging technologies like AI, blockchain, and IoT promise continued expansion.

For investors, mutual funds focused on the technology sector offer attractive opportunities due to robust growth prospects and supportive government policies. The ongoing digital transformation ensures long-term investment potential in technology companies.

Here are some of best performing Technology Funds:

a. Franklin India Technology Fund

Franklin India Technology Fund invests in technology and technology-related companies. This primarily includes IT services, software, hardware, e-commerce, and mobile application companies which are well-positioned to benefit from ongoing digital transformation initiatives.

Its portfolio currently includes major holdings in companies like Zomato, PB Fintech, TeamLease Services, Indiamart Intermesh, Info Edge (India), CE Info Systems, Mphasis, and so on. The fund has delivered strong returns, driven by strategic investments in such high-growth technology companies. The fund’s focus on high-growth technology companies makes it a strong contender for future gains.

Portfolio Holdings as of April 30, 2024; Source: ACE MF 

b. Tata Digital India Fund

Tata Digital India Fund focuses on companies that are leaders in the technology sector and those expected to benefit from the digital transformation in India. This includes IT services, software, technology hardware, and e-commerce companies which are expected to capitalise on the growing digital economy. The fund has shown consistent performance, with a portfolio comprising top holdings in companies like Infosys, TCS, Tech Mahindra, HCL Technologies, Zomato, LTIMindtree, Wipro, etc. The fund’s strategic investments in digital-centric companies position it well for growth.

Portfolio Holdings as of April 30, 2024; Source: ACE MF 

c. ICICI Prudential Technology Fund

ICICI Prudential Technology Fund primarily invests in information technology companies and various sub-sectors that are dependent on technology. The fund’s diversified portfolio and focus on high-growth technology stocks make it a promising investment opportunity. Its portfolio includes significant holdings in companies like Infosys, TCS, HCL Technologies, Tech Mahindra, and LTIMindtree, which have contributed to its strong performance.

Portfolio Holdings as of April 30, 2024; Source: ACE MF 

5. Healthcare and Pharma Funds

The healthcare and pharmaceutical sector in India has gained significant attention, especially due to the COVID-19 pandemic. Government initiatives like Ayushman Bharat, which provides health coverage and establishes Health and Wellness Centres, are boosting the sector. Increased investment in healthcare infrastructure, including hospitals, is enhancing medical services, especially in rural areas.

The pharmaceutical sector has also grown, driven by the demand for medicines and vaccines. Continued government focus on healthcare and pharmaceutical innovation will support further growth.

For investors, mutual funds focusing on healthcare and pharmaceutical sector offer promising opportunities due to rising government spending, technological advancements, and increased demand for healthcare services and products.

Here are some of best performing Healthcare and Pharma Funds:

a. Nippon India Pharma Fund

Nippon India Pharma Fund invests in pharmaceutical and healthcare companies that are poised to benefit from increased government spending and growing demand for healthcare services. The fund has delivered strong returns, driven by strategic investments in high-quality healthcare stocks.

Its portfolio includes top holdings in pharmaceutical companies like Sun Pharma, Lupin, Cipla, Divi’s Laboratories, Dr. Reddy’s Laboratories, Gland Pharma, etc., which are well-positioned to benefit from ongoing healthcare initiatives. The fund’s focus on high-quality healthcare stocks makes it a strong candidate for growth.

Portfolio Holdings as of April 30, 2024; Source: ACE MF 

b. SBI Healthcare Opportunities Fund

SBI Healthcare Opportunities Fund focuses on companies in the healthcare and pharmaceutical space which are expected to benefit from increased healthcare spending and growing demand for medical services. The fund has shown impressive performance, with a portfolio comprising significant holdings in companies like Sun Pharma, Max Healthcare Institute, Cipla, Divi’s Laboratories, Lonza Group Ag, Mankind Pharma, Aether Industries, and Jupiter Life Line Hospitals. The fund’s strategic investments and focus on growth-oriented healthcare companies position it well for future gains.

Portfolio Holdings as of April 30, 2024; Source: ACE MF 

c. ICICI Prudential Pharma Healthcare & Diagnostics (P.H.D.) Fund

ICICI Prudential Pharma Healthcare & Diagnostics (P.H.D.) Fund invests in a diversified portfolio of pharmaceutical, healthcare, hospitals, diagnostics, wellness and allied companies. Its portfolio currently includes major holdings in companies like Sun Pharma, Divi’s Laboratories, Aurobindo Pharma, Dr. Reddy’s Laboratories, Apollo Hospitals, Lupin, Cipla, etc., which have contributed to its strong performance. The fund’s emphasis on quality healthcare and pharma stocks and alignment with government initiatives make it a prudent investment choice.

Portfolio Holdings as of April 30, 2024; Source: ACE MF 

Now that we have seen these 5 sector fund types that could benefit during Modi 3.0 Era, we should understand that sector and thematic funds come with significant risk due to their concentrated nature, making them unsuitable for all investors. These funds are best suited for informed investors who are comfortable with high risk and possess the ability to time their entry and exit strategically. You should always consider your risk tolerance and investment knowledge before choosing sector or thematic funds.

For those who are not investment experts, diversified equity funds are a safer and more appropriate option. By investing in a wide range of sectors, these funds mitigate the risks associated with a single industry or sector. Moreover, exposure to multiple high-growth sectors ensures that the fund can capture opportunities across the market.

So, here is a bonus one…

6. Diversified Equity Funds

As we know, diversified equity funds invest across various sectors and industries, providing a balanced exposure to the equity market. The Modi government’s emphasis on economic growth and reforms could create a favourable market environment. This can lead to increased investor confidence and higher stock prices in the years to come. Consequently, diversified equity funds may see improved performance due to their broad portfolio exposure and ability to capitalise on market upswings resulting from government policies and economic developments.

Here are some of best performing Diversified Equity Funds:

a. ICICI Prudential Bluechip Fund

ICICI Prudential Bluechip Fund invests in large-cap companies across different sectors. The fund’s focus on blue-chip stocks provides stability and growth potential, making it an attractive option for diversified equity exposure. It has shown above-average performance, with a portfolio comprising major holdings in blue chip names like ICICI Bank, Reliance Industries, Larsen & Toubro, Maruti Suzuki India, Axis Bank, and Infosys. The fund holds substantial allocation to Banks, Petroleum, Auto, Infotech, and Infrastructure sectors.

Portfolio Holdings as of April 30, 2024; Source: ACE MF 

b. HDFC Flexi Cap Fund

HDFC Flexi Cap Fund is a well-established diversified equity fund with a strong multi-decade track record. The fund has a dynamic investment mandate with the flexibility to invest across market caps. It holds exposure across various sectors, with a focus on growth-oriented companies.

Over one-third of the fund’s portfolio is focused toward the Bank sector, followed by Pharma, Infotech, Auto, and Engineering. It includes top holdings in companies like ICICI Bank, HDFC Bank, Axis Bank, Hindustan Aeronautics, Cipla, SBI, Bharti Airtel, etc. ensuring a well-diversified exposure to the equity market. Its balanced approach and consistent performance make it a solid choice for investors.

Portfolio Holdings as of April 30, 2024; Source: ACE MF 

c. Nippon India Multi Cap Fund

Nippon India Multi Cap Fund invests in a mix of large-cap, mid-cap, and small-cap stocks across various sectors. This diversified approach allows the fund to capture growth opportunities in different market segments, making it a robust investment option. The fund has delivered strong returns, with a highly diversified portfolio that currently includes top holdings in companies like HDFC Bank, Linde India, EIH Ltd., ICICI Bank, Axis Bank, and Reliance Industries. The fund’s top sector exposure include Banking & Finance, Engineering, Auto, and Pharma & Healthcare.

Portfolio Holdings as of April 30, 2024; Source: ACE MF 

So, here are some of the mutual fund types that are expected to benefit during Modi’s third term as the Modi-led NDA government retains power. The continued focus on infrastructure development, economic reforms, digital transformation, and healthcare will drive growth in these sectors, making them attractive investment opportunities. Investors should keep a close eye on these sectors as they navigate the market landscape in the coming years. It’s essential to stay informed about government policies and sectoral trends to capitalise on potential investment opportunities

Note: This article is intended purely for informational purposes and contains some of the top picks of our research for the Modi 3.0 Era. It is not a recommendation to buy or sell any of the mentioned schemes.

While these sector funds may present promising investment opportunities, it is crucial to exercise caution and conduct thorough due diligence before making any investment decisions. Investors should evaluate their risk tolerance and investment goals carefully to ensure that any investment aligns with their financial objectives. Remember, the key to successful investing is informed decision-making and a long-term perspective.

This article first appeared on PersonalFN here