Kotak MF launches Kotak Technology Fund, focusing on tech and related sectors. NFO opens Feb 12, 2024, closes Feb 26, 2024. Tech is a top-performing industry globally (Fortune), with significant weight in indices like S&P 500 and Nifty 50 (NSE). India leads in IT services exports. Reviewing Kotak Technology Fund: seizing opportunities in the decade's fastest-growing sector (Fortune).
Global IT spending is rising
IT services spending has maintained steady growth, averaging between 7% to 10% over recent years, as depicted in the chart below.
Global IT spending has been experiencing robust growth, as illustrated in the chart below.
Domestic market opportunities abound, offering significant potential for investors
India ranks among the highest globally in smartphone data consumption per user, signaling significant market potential for digital and telecommunications sectors.
While significant progress has been made in e-commerce in recent years, India's market penetration still presents a vast opportunity when compared to China and the US.
IT sector is fundamentally strong*
The IT sector demonstrates consistently strong metrics:
EBIT Margins consistently around 20% (source: Kotak MF)
Increasing Return on Equity, currently around 30% (source: Kotak MF)
Increasing Operating Cash Flows, with operating cash flows as a percentage of EBITDA at around 90% (source: Kotak MF)
High dividend payouts.
The above data pertains to the average performance of the Top 5 IT companies in India.
Technology sector has demonstrated superior performance compared to the broader market indices.
The chart illustrates the growth of a Rs 10,000 investment in Nifty IT TRI compared to Nifty 50 TRI over the past decade, highlighting the outperformance of the Nifty IT Index during this period.
Valuation premiums of large-cap IT stocks are generally aligned with market trends.
Salient features of Kotak Technology Fund include:
Bottom-Up Approach: Identifying companies within technology or related sectors using a Business Management Valuation (BMV) approach.
Stock Selection: Emphasis on companies demonstrating Growth At Reasonable Price (GARP) principles.
Flexibility Across Market Caps: Ability to invest across all market capitalization segments, ensuring broad exposure to the technology sector.
Participation in Growth Potential: Investing in companies poised to capitalize on the growth potential of the technology sector.
Investment Universe: Selection of top ideas through in-house research, facilitating thorough analysis and informed decision-making.
Kotak Technology Fund – Investment Universe
Why Invest in Kotak Technology Fund Now?
Key Reasons to Consider Investing in Kotak Technology Fund Now:
Disruption by New Technologies: Emerging technologies like digital, cloud, and Gen AI are reshaping industries, creating investment opportunities.
Enterprise Technology Adoption: Increasing adoption and upgrades of enterprise technology could drive sustained long-term growth.
Consumer Tech Adoption: Continued adoption of technology by consumers remains a significant growth driver for tech firms.
Macro Recovery: With central banks pivoting towards rate cuts, the sector is poised for macroeconomic recovery following uncertainties caused by rate hikes.
Potential for Strong Recovery: Pent-up demand for technology services may fuel a robust recovery in growth and profitability.
Valuation Alignment: The sector's valuation divergence from historical levels is in line with broader market trends.
Attractive PE Multiples: Adjusted for high growth in the post-COVID era, PE multiples in many cases present attractive investment opportunities.
Who Should Consider Investing in Kotak Technology Fund?
Investors who may consider Kotak Technology Fund include:
Those seeking Tactical Allocation within their equity portfolio.
Investors aiming for capital appreciation over long investment horizons, particularly in the manufacturing theme.
Individuals with a high-risk tolerance.
Investors with a minimum investment horizon of 5 years.
Those interested in investing either through lump sum or SIP, tailored to their investment objectives.
It's advisable for investors to consult with financial advisors or mutual fund distributors to determine if Kotak Technology Fund aligns with their investment goals and risk profiles.
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*Investors should consult their financial advisors if in doubt about whether the product is suitable for them Note: The above information has been sourced from the Scheme Information Document provided by Kotak Asset Management. Read the entire document before investing, Disclaimer: Jaiprakash (ARN/Distributor - 70524; brand name Vasundhra Investment) is the distributor of the mutual fund. Please consult your investment advisor before investing
Mutual Fund investments are subject to market risks, read all scheme related documents carefully.