Top 5 Mutual Funds with High Allocation to Chemical Stocks

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. In 2024, the chemical sector finds itself at a crossroads. While ambitious growth projections paint a rosy picture, headwinds from the global market and internal hurdles threaten to slow progress.

India still relies heavily on imports for critical raw materials and intermediates. This dependence exposes the industry to fluctuations in global prices and potential supply chain disruptions. Despite the challenges, the value of India's chemical sector has expanded significantly in recent years as a result of increasing government activities and growing demand for chemicals across multiple sectors.

[Read: Top 5 Green Energy Mutual Funds: Powering Your Portfolio with Sustainability]

A key factor propelling the Indian chemical sector's growth is the increasing demand for specialty chemicals, which are crucial for various high-growth industries such as automotive, agriculture, and healthcare. Moreover, the emphasis on sustainable and green chemistry has led to the adoption of environmentally friendly practices and the development of bio-based chemicals, aligning the sector with global sustainability trends.

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.

[Read: Capitalize on Specialty Chemical Boom with these Top 5 Mutual Funds]

This article delves into the top five mutual funds that have strategically invested in chemical stocks, offering insights into their performance, allocation strategies, and potential benefits for investors. Mutual funds that focus heavily on chemical stocks leverage the growth trajectories of leading chemical companies.

Let us take a deeper look into which mutual fund scheme carries a high exposure to chemical stocks.

#1 - ICICI Pru Commodities Fund

ICICI Pru Commodities Fund invests in stocks of companies engaged in commodity and commodity related sectors. Launched in 2019, the scheme invests across market cap, and as of May 2024, it holds 49.41% allocation in large caps, 24.05% allocation in mid-caps and 22.75% in small caps. It currently holds an AUM of Rs. 2370.77 crores.

ICICI Pru Commodities Fund holds maximum exposure in one of the top chemical stocks - UPL Ltd., which manufactures and markets agrochemicals, industrial chemicals, chemical intermediates, and specialty chemicals, and also offers pesticides.

The scheme also carries an allocation to some of the best chemical stocks in India, like - Navin Fluorine International Ltd., PI Industries Ltd., Aarti Industries Ltd., Sumitomo Chemical India Ltd. and many more. Currently, the overall exposure to chemical stocks accounts for 13.81% of the scheme's assets.

#2 - HDFC Defence Fund (Thematic Fund)

HDFC Defence Fund invests predominantly in equity and equity related securities of Defence & allied sector companies. Launched in June, 2023, it currently has an AUM of Rs 3232.88 crores. The scheme invests across the market cap, and as of May 2024, it holds 51.27 % allocation in large caps, 7.51% allocation in mid-caps and 38.68% in small caps.

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.

HDFC Defence Fund holds maximum exposure in chemical stocks like - Premier Explosives Ltd. at 6.21%, which is the pioneer in indigenising the technology for manufacture of explosives and accessories. The company caters to the requirement of explosives in the defence sector and deals in chemicals required to make such explosives.

And 6.14% in Solar Industries Ltd. (leading companies from the chemical sector), the company provides complete blasting solutions which includes packaged, bulk explosives and initiating systems to meet its customer needs across the globe. Currently, the overall exposure to chemical stocks accounts for 12.34% of the scheme's assets.

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

Launched in June 2012, Axis Focused Fund is categorised as a focused scheme that invests in a concentrated portfolio of equity & equity-related instruments of up to 30 companies. As of May 2024, the fund has 98.99% investment in domestic equities, of which 51.26 % is in Large Cap stocks, 7.51% is in Mid Cap stocks and 38.68% is in Small Cap stocks.

Axis Focused Fund has an overall allocation of 8.52% 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. who manufactures agricultural and fine chemicals, and polymers.

#4 ICICI Pru Smallcap Fund (Market Cap Fund)

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

In terms of chemical stocks, ICICI Pru Smallcap Fund holds an allocation of around 1% each in Gujarat Narmada Valley Fertilizers & Chemicals Ltd., Birla Corporation Ltd., Gujarat Alkalies And Chemicals Ltd., Sudarshan Chemical Industries Ltd. and Galaxy Surfactants Ltd. The fund also has exposure to a few other chemical business-oriented companies. Overall, these stocks form around 8.44% of the fund's assets.

#5 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 May 2024, it holds 64% allocation in large caps, 16.78% allocation in mid-caps and 16.79% in small caps.

Tata Resources & Energy Fund holds maximum exposure in stocks of Sumitomo Chemical India Ltd., who manufactures, imports and markets products for Crop Protection, Grain Fumigation, Rodent Control, Bio Pesticides, Environmental Health, Professional Pest control and Feed Additives for use in India.

The scheme also carries an allocation to some of the best chemical stocks in India, like - Navin Fluorine International Ltd., Aarti Industries and Deepak Nitrite Ltd. Currently, the overall exposure to chemical stocks accounts for 7.72% of the scheme's assets.

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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. Under the Interim Union Budget 2024-25 the government allocated Rs 192.21 crore (USD 23.13 million) to the Department of Chemicals and Petrochemicals.

As Prime Minister Narendra Modi embarks on his third term in office, commonly referred to as 'Modi 3.0' the Indian chemical industry is poised for significant transformation and growth. One of the most anticipated impacts of Modi 3.0 on the chemical industry is the continuation and expansion of the 'Make in India' and 'Atmanirbhar Bharat' initiatives, to reduce dependency on imports.

[Read: 5 Best Mutual Fund Types to Benefit During Modi's Third Term]

Environmental sustainability and green chemistry are also expected to gain significant attention under Modi 3.0. With global pressure mounting on industries to adopt eco-friendly practices, the government is likely to implement stricter environmental regulations while simultaneously offering incentives for green initiatives.

Additionally, Modi 3.0 is expected to further strengthen India's infrastructure, which is vital for the growth of the chemical industry. Improved logistics, better connectivity, and upgraded ports and industrial corridors will facilitate smoother and more efficient supply chains.

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.

However, do note 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 may take time to become a global leader.

To Summarise...

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. By fostering a culture of innovation, sustainability, and technological advancement, the Indian chemical industry can solidify its position as a global leader in the years to come.

Investors can gain exposure to this industry's development potential by indirectly purchasing chemical stocks via mutual funds. Mutual Funds investing in chemical stocks could be a beneficial addition to one's portfolio, provided his suitability is based on risk appetite, investment horizon, and goals.

Also, before investing, one should examine the performance of mutual fund schemes with a high allocation to chemical stocks. Do note that only a limited portion of your portfolio should be allocated if one considers investing in such Sectoral/Thematic Funds.

Disclaimer: PersonalFN does not receive any monetary compensation from the fund house or scheme names stated in the article.

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MITALI DHOKE is a Research Analyst at PersonalFN. She is an MBA (Finance) and a post-graduate in commerce (M. Com). She focuses primarily on covering articles around mutual funds including NFOs, financial planning and fixed-income products. Mitali holds an overall experience of 4 years in the financial services industry.
She also actively contributes towards content creation for PersonalFN’s social media platforms in the endeavour to educate investors and enhance their financial knowledge.
 

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 in the above-mentioned schemes.