Transportation and logistics as an investment theme has caught the fancy of fund houses. Recently, IDFC Mutual Fund and ICICI Prudential Mutual Fund launched their transportation and logistics fund. As the name suggests, these funds will invest in stocks of companies that belong to the transportation and logistics sector.
In this article, we will look at this theme and understand if it makes sense to invest in these funds.
But first, let us talk about the transportation and logistics sector.
The transportation and logistics sector is one of the critical cornerstones of the Indian economy.
The automobile industry is an essential contributor to the Indian economy. It has historically been a reliable barometer of how the Indian economy is performing, as it is affected by factors such as the country’s young population size and rapidly growing middle class.
For a nation’s economy to function, logistics are crucial. It has to do with how resources are generally gathered, kept, and transported to their final destination under control. A strong logistics sector can act as a differentiating factor and significantly impact any country’s exports.
Now, let us look at some aspects of investing in the theme through these funds.
Adoption of electric vehicles
Electric vehicles (EVs) are slowly making their way into the Indian streets. Many more people might adopt EVs in the coming future.
By 2025, it is predicted that India’s electric vehicle (EV) market will be worth Rs. 50,000 crores (US$ 7.09 billion). According to a CEEW Centre for Energy Finance report, India might have a US$206 billion market for electric vehicles by 2030. Estimates say it will require US$ 180 billion worth of investments in infrastructure for EV production.
People would also require finance to buy EVs. NITI Aayog and the Rocky Mountain Institute (RMI) estimate that by 2030, the Indian EV finance market will likely be worth Rs. 3.7 lakh crore (US$ 50 billion).
According to a report by the India Energy Storage Alliance, the country’s EV industry is anticipated to grow at a CAGR of 36% until 2026. Additionally, it is anticipated that the EV battery market will grow within the same time period at a CAGR of 30%.
So, if EV growth is per expectation, then we might witness serious growth in the sector.
Assisting the government in increasing sector demand
The push from the government plays a crucial role in the growth of any sector. And we have seen the government making significant investments in the transportation and logistics industry through various policies.
The National Logistics Policy (NLP), Multi Model Logistics Park (MMLP), Production Linked Incentives for the Auto Sector, Clean Tech Scheme, FAME (Faster Adoption of Manufacturing of EVs), and other programmes are among these projects. It is anticipated that these government actions will pave the way for a bullish outlook on the transportation and logistics industry, making this an excellent time to invest there.
Expected growth in the logistics sector
The importance of the logistic sector is unparalleled in the current scenario. While unorganised players dominate the sector, industry experts expect disruption from the unorganised to organised players.
One of the key reasons that make logistics an important sector that investors should look out for is the growth in the e-commerce business. More and more people are ordering online, and this trend is likely to increase in the future. And to cater to the demand, the ecosystem of transportation, warehousing and other value-added will play a crucial role.
If we look at warehouses in India, the warehousing market is anticipated to be valued $12 billion in 2020 and is expanding more quickly. Since 2017, the storage market has drawn more than $6.5 billion in investment, and in the coming five years, more investment is anticipated.
The potential space for warehousing in India’s eight largest cities is 500 million square feet, while the current stock in these cities is 307 million square feet. The desire for more storage space, the expansion of e-commerce, the growing presence of Indian companies in foreign markets, and other factors contribute to the warehousing market’s growth.
Things to keep in mind
The first thing investors need to understand is that these funds are not like regular equity funds. These are thematic funds, and the time of entry and exit from these funds is crucial. While experts believe it is a good time to invest in these funds, ensure you are prepared to handle the thematic fund’s volatility.
You can ignore thematic funds if you haven’t invested in mutual funds. However, you can allocate a certain percentage of your total portfolio if your portfolio is diversified across different asset classes per your goals and needs.
Padmaja Choudhury is a freelance financial content writer. With around six years of total experience, mutual funds and personal finance are her focus areas.