Kotak Services Fund NFO: Investing in the Service Sector Boom

About Services Sector in India

In modern times, services sector has permeated many aspects of our day-to-day life. From credit cards and net banking to mobile / broadband and online shopping (e-commerce), travel and leisure, quick commerce, healthcare services to media (TV, OTT) and entertainment, it is difficult to imagine modern life without the roles of the services sector. Services sector is the largest contributor to India’s GDP. Services is a major (source: Press note on provisional FY 2023-24 GDP estimate, Ministry of Statistics & Programme Implementation, Government of India). India is one of the Top 10 services exporter in the world. The services sector covers a variety of industries ranging from Services as investment theme represents a vast and diversified set of investment opportunities covering sectors like Banking and Financial Services, Information Technology, Telecom, Healthcare, Transportation, Hospitality etc. Kotak MF has launched a new fund offer (NFO), Kotak Services Fund, which will invest in companies that are part of the services theme. In this article we will understand how the Kotak Services NFO can be a good addition to your portfolio.

Government reforms and initiatives for the Services Sector

To ensure the liberalisation of investment in various industries, the Government has permitted 100 per cent foreign participation in telecommunication services including all services and infrastructure providers, through the Automatic Route. The FDI ceiling in insurance companies was also raised from 49% to 74%. Measures undertaken by the Government to boost FDI include the National Single-Window system, enhancement in the FDI ceiling through the automatic route etc. have played a significant role in facilitating investment. The Government's push to boost the digital economy, growing internet penetration, rise in smartphone adoption, financial inclusion through PM Jan Dhan Yojana, increased adoption of digital payments (UPI and JAM Trinity), shift from physical assets to financial assets, RBI's push for credit, growth in demat accounts, growth in mutual fund AUM, etc indicates growing financialization. At the same time, healthcare reforms and initiatives like Ayushman Bharat Pradhan Mantri - Jan Arogya Yojana (public health insurance scheme), ABHA Health card, e-Sanjeevani (telemedicine) etc are key steps in providing universal healthcare to vast sections of the population. Formalization of the economy (shift from unorganized to organized sectors) through reforms like GST implementation, digital India (UPI), e-invoicing can create a long runway for growth of services sector in India.

Why should you invest in the Services Sector?

• Services sector has remained the engine of India's growth: The services sector in India has grown by 11% in the last 10 years (as of FY24) vs overall GVA growth of 10.2%. Service sector had the highest contribution in the GVA with `55% share in FY25, whereas the industry sector contributed 27% and Agriculture accounted for 18%.
  
  

  

  Source: IMF, World Bank, MOSPI, IBEF, India Employment Outlook 2030. Data as on FY 2025



• Sector Allocation: Historically the Financial sector and the services sector have moved in opposite directions. Active management can help with dynamic sector allocation.
  
  

  

  Source: NSE Data as of Dec 2025.



• Service Sector growth: Historically it is seen that the Service sector typically grows faster than agriculture and industry. Over the last 13 years, average GVA is 6.0%, Agriculture growth is 3.9%, Industry growth is 5.5% whereas Service sector growth is 7.7%.
  
  

  

  Source: B&K Securities data as on FY 2025



• Employment: More than 31.5% of the workforce in India is employed by the Services sector. Moreover, a 22% increase in overall employment is expected by the year 2028.


• Services export: India remained amongst the top five countries in terms of services export in FY 2025. In fact, Services export in India was more than merchant exports. This has placed India as the office to the World.
  
  

  

  Source: WTO, Morgan Stanley Research, Morgan Stanley Research Estimates. Data as of CY2024



• Share of services increase with per capita income: A world bank data reveals that the services sector growth aligns with Per Capita income crossing the inflection point of $2000. (See graphic below). Investing in the Services sector gives an opportunity for investors to participate in this growth.
  
  

  

  Source: B&K Securities Data as on FY25



• Diversified thematic investment: Investment in the Services sector helps investors diversify their portfolio with benefits from growth across different sectors. (See graphics which shows the different sectors across the services theme and their weights in the index)
  
  

  

  Source: Kotak MF, as on 31^st January 2026



• Demographic advantage: The population of India remains young compared to the average world population that is ageing.
  
  

  

  Source: World Bank data as on Nov 2025; as per latest data available.



• Digitization: Digitization is aiding growth in the Services sector.
  
  

  

  Source: Morgan Stanley; as per latest data available

Growth trends in various services

Financial Services: The financial sector has grown exponentially in the last decade driven by digitization and fintech boom.

• Asset quality and net interest margins of banks have improved. Return on assets and return on equity are also on improving trend.
  
  

  

  Source: RBI Trend and Progress Report, Dec 24



• AUM of Life insurance increased by 12% in last 10 years (FY15-25E)


• Unique MF investors jumped 2.4x (50m) in last 5 years


• Demat accounts surged 4.4x (179m) in last 5 years
  
  

  

  Source AMFI, NSDL, CNBC, Data as on 31^st December 2025



• Major NBFC loan AUM growth by 17% in last 5 years


• Credit card spends grew by 20% in last two years (Jan 23-25)

IT Services: IT services provides one of the best cash conversions within the different sectors despite the various challenges.

• India stands to gain from outsourcing with digitally skilled talent at lower costs


• Outsourcing penetrations is expected to grow to an estimated 34% by 2029, which should support the growth for IT companies. Technology is emerging as a competitive differentiator, so IT services firms can combine expertise with cost-effectiveness.


• Indian IT firms have demonstrated ability to pivot their services offerings and reskill and upskill talent which positions them well for tapping into any new technology trends.

Internet: The Internet market opportunity is huge in India and is showing exponential growth. This gives impetus to the quick-commerce industry and in turn boosts the service sector.

Source: Statista, Bessemer Venture partners: https://www.statista.com/statistics/935872/india-retail-market-size/, extension://efaidnbmnnnibpcajpcglclefindmkaj/ https://assets.kpmg.com/content/dam/kpmg/pdf/2014/11/BBG-Retail.pdf, https://www.ibef.org/industry/ecommerce

Telecom: The telecom sector has seen an increasing base with 5G driving increased data usage.

• India is inclined to be amongst the top countries with 5G data usage.


• India’s mobile data consumption as percentage of global mobile data consumption has increased from 4% in 2014 to 20% in 2024.
  
  

  

  Source: Ericsson, TRAI, Avendus, Spark Estimates

Healthcare: Growth drivers point to high opportunity in healthcare sector. Despite impressive strides made by India in healthcare infrastructure and services, our healthcare expenditure as percentage of GDP is low compared to global peers, indicating a long runway for growth in healthcare sector.

Hospitality: Hospitality continues to get a higher wallet share

• The Indian Government continues to invest in the tourism industry and the sector is poised to create millions of jobs in the next decade.
  
  

  



• Domestic Tourism is expected to grow at CAGR of 14.2%


• A sharp growth in spiritual tourism is witnessed in India, and is expected to reach $130 billion by the year 2032

Power: The demand for power is growing at an estimated CAGR 4.6% for the FY 26-30. This demand is without taking into account the data centres’ demand, which if added will push the demand even higher. Services sector is a beneficiary of this huge growth.

Source: CEA, MOSPI, YES Sec, Data as on FY 25

Kotak Services Fund NFO

The Kotak Services Fund NFO will open for subscription on 4^th February 2026 and remain open till 18^th February 2026. The investment objective of the fund is to generate long term capital appreciation with an actively managed portfolio of equity and equity related securities in the companies belonging to the services industry. The fund is managed by Mr. Rohit Tandon.

Investment Approach

Source: Kotak MF Product ppt

Why is now a good time to invest in the Services Sector?

1. Superior ROE: Services sector index ROE is consistently higher than that of the broad market index, Nifty 50 for the past 5 years.


2. Superior profit margins: PAT margin of services sector index ROE consistently higher than that of the broad market index, Nifty 50.
   
   

   

   Source: Bloomberg, Data as on FY 25



3. Outperformed the broad market index: The services sector index has outperformed the broad market index, Nifty 50 in the long term. The services sector index has also been more consistent than the Nifty 50 Index, outperforming it 9 times in last 16 calendar years
   
   

   

   Source: MFI Explorer, Data as on 31^st January 2026

Why should you invest in the Kotak Services Fund NFO?

• Service industries benefit from economic formalization and technology growth, driven by rising incomes and digitalization.


• Services theme covers diverse sectors ranging from traditional sectors like Banking, IT, Telecom, Power etc to emerging sectors like Q-Commerce, logistics, E-Commerce and Fintech


• The fund will invest quality companies with scalable opportunities, capital efficiency, and competitive advantages.


• Fund will have high active share, focusing on trends in formalization and technology within the services theme, thereby aiming to generate alpha for investors

Who should invest in the fund?

The fund is suitable for:-

• Investors with high-risk appetite


• Investors who are looking for long term capital appreciation


• Investors with a minimum investment horizon of 5+ years


• Those who want to participate in the growth of service industry in India.

Contact your financial advisor or mutual fund distributor to understand if the Kotak Services fund NFO is suitable for your investment needs.