Kotak Business Cycle Fund: Strategic investment for long term wealth creation

Indian equity markets have shown strong resilience amidst geo-political and geo-economic uncertainties. In current global equities environment, there may be greater divergence in performance of certain stocks / sectors. In such a scenario, Kotak Business Cycle Fund, which invests in sectors and stocks that are in favourable stages in their business cycles can be good investment option for long term investors.

What are business cycles?

All markets go through cycles of economic growth and decline - these are known as business cycles (see the chart below). A business cycle usually has 4 phases - expansion, peak, contraction, and slump.

• Expansion - Rising GDP, increasing employment, consumer confidence and spending


• Peak - Economic growth slows down, inflation may rise, interest rates are high, and market valuations may be stretched


• Contraction - Declining GDP, rising unemployment, reduced consumer and business spending


• Slump - Economic activity bottoms, green shoots of recovery begin to appear
  
  

  

Why invest as per Business cycles?

• Phases of the economy also influence the cycles of the equity market. The chart below shows the one-year rolling returns of Nifty 500 TRI (index of the Top 500 listed companies) since FY 2005-06. We have also shown GDP growth and economic cycles below this chart. You can see that the equity market cycles are influenced by economic cycles. The periods of downturns in the market coincide with the periods of downturns in the economy.
  
  

  

  Source: NSE, Advisorkhoj research as on 17^th June 2025

  
  

  

  Source: World bank, as on 31^st Dec 2023



• Different companies and sectors react uniquely to each phase of the business cycle. In business cycle funds, the fund manager selects companies that are likely to perform well in each phase (see the graphic below).
  
  

  

  Source: NSE, Advisorkhoj research as on 31^st May 2025

Kotak Business Cycle Fund: Regular Growth

The Kotak Business Cycle Fund was launched in September 2022, and is an equity (thematic) scheme following business cycles-based investing theme. The fund invests in a portfolio of predominantly equity & equity related securities of companies with a focus on riding business cycles through dynamic allocation between various sectors and stocks at different stages of business cycles in the economy. The fund is managed by Fund managers Mr. Harish Bihani and Mr. Abhishek Bisen. The fund has an AUM of Rs 2,728.93 Crores as on 31^st May 2025. The benchmark of the fund is Nifty 500 TRI.

Wealth Creation with Kotak Business Cycle Fund

If you had invested Rs 1 lakh in the fund at its inception, it would have grown to Rs 1.56 lakhs as on 31^st May 2025, giving a CAGR of 18. 41%, and an absolute growth of 1.5X in less than 3 years.

An SIP of Rs 10,000/- started in the fund at the same time (inception) would have accumulated a corpus of Rs 4.10 lakhs against a cumulative investment of Rs 3.2 lakhs giving an XIRR of 19.11%

Source: Advisorkhoj research as on 31^st May 2025

Outperformance of Fund Vs Benchmark

• Point to Point Returns: The chart below shows the point-to-point returns of the fund Vs its benchmark across periods. You can see that the fund has been able to generate alphas in most periods.
  
  

  

  Source: Kotak MF; Less than 1 Year Absolute Returns, >1 Year CAGR Returns, As on 30 May 2025, performance of regular growth fund considered. Past performance may or may not be sustained in the future. The performance of the index shown does not in any manner indicate the performance of the Scheme.



• Rolling Returns: The chart below shows the 2 Year rolling returns of the fund against its benchmark (from its inception to May 2025). You can see that the fund was able to beat the benchmark Nifty 500 TRI in most instances.
  
  

  

  Source: Advisorkhoj research as on 31^st May 2025

Investment process of the Kotak Business Cycles Fund

The Investment committee of the fund monitors the macro to assess the business cycles prevalent. The in-house research team then identifies the probable sectors that could perform in these cycles. These are experts who can assess business cycles' position and direction compared to the overall economic trend. The fund managers then proactively identify investments from these identified sectors using indicators, domain knowledge, and past business trends. The entire process is dynamic and is modified as per the economic cycles.

Portfolio Construct

• Sector concentration: Sector/theme selection is critical to take advantage of the opportunities presented by the sectors in different business cycles. The fund has the flexibility to invest across sectors and concentrates on those sectors which have been identified as probable performers in the relevant economic scenario.
  
  

  

  Source: Kotak MF, MFIE. FY25 returns are as on 31^st March 2025: Past performance may or may not be sustained in the future. NSE & BSE sectoral indices performance in PRI are used as proxy for sectoral performance. Average of absolute performance of top 5 performing sectors & average of absolute performance of bottom 5 performing sectors are considered. The performance of the index shown does not in any manner indicate the performance of the Scheme.

  
  

  

  Source: Kotak MF, as on 30^th May 2025. The stock(s)/sector(s) do not constitute any recommendation and the fund house may or may not have any future position in these stock(s) & sectors(s). Past performance may or may not be sustained in the future. The portfolio of the scheme is subject to changes within the provisions of the Scheme Information document of the Scheme.



• Market Cap allocation trend: The fund has been large cap biased since its inception. See the chart below that shows the market cap allocation of the fund since 2023.
  
  

  

Current Portfolio Positioning

Source: Kotak MF, Fund factsheet as on 31^st May 2025

Why invest in Kotak Business Cycle Fund?

• Focusses on high-growth sectors and companies with strong earnings, cash flow potential, and favorable industry tailwinds.


• Exits or reduces positions in companies with weakening earnings outlook and rising risks, prioritizing capital preservation.


• Invests in companies with strong earnings momentum and cash flow, avoiding those with weakening fundamentals.


• Has demonstrated improved performance over the past year by focusing on sectors with sustainable growth over 18-36 months.

Who should invest in Kotak Business Cycle fund

• Suitable for investors looking to invest in a thematic fund for long term capital appreciation


• Investors looking for an equity-oriented portfolio that aims to invest dynamically across businesses and sectors that are expected to be impacted positively by medium to long term growth themes


• Investors with investment horizons of at least 5 years


• Investors with very high-risk appetites

Investors should consult with their financial advisors or mutual fund distributors whether Kotak Business Cycle Fund is suitable for their investment needs.