NFO Pick – (Kotak Nifty Chemicals ETF)

27 Oct 2025 , 03:29 PM

WHY CHEMICALS ETF AND WHY PASSIVE APPROACH?

In a sense, chemicals are the invisible force behind life. India has some distinct advantages in the chemicals space. India is already the sixth largest producer of chemicals in the world, and the third largest in Asia. Chemicals contribute about 7% to India’s GDP and chemicals industry is expected to touch revenues of $1 Trillion by year 2040.

Let us look at why an ETF approach? It avoids the hassles of stock selection in a complex and dynamic sector. A passive ETF approach not only reduces the overall costs to the investor, but also ensures that there is an in-built element of diversification for investors. The semi-annual rebalancing will ensure that the underlying portfolio stays as dynamic as possible.

WHAT PUTS INDIAN CHEMICALS INDUSTRY IN A SWEET SPOT?

There are several factors that have made Indian chemical stocks interestingly poised.

• In the last couple of years, the US and other countries have adopted a China + 1 policy when it comes to dependence on Chinese supply chains to derisk their models.
• Thanks to the proliferation of pharma, CDMOs, and GCCs; India has built a rather formidable R&D capability when it comes to the chemicals space.
• Government of India is also giving a major push to the chemicals sector with production related incentives, and that is likely to be a boost for Indian chemicals industry.
• In terms of market share, India is just 3% of the global chemicals value chain, while China is 43%. That is huge opportunity headroom for India in terms of potential growth.
• Contract development & manufacturing (CDMO) is likely to be a major trigger for India chemicals demand giving a big sectoral boost.
• Above all, China’s anti-Involution policy to curb internal price wars, is likely to restrict Chinese supply and open the doors for India to expand its role in the supply chain.

Being a very dynamic industry, constantly in a state of flux, it would be a good idea to adopt a phased SIP approach to investing in Kotak Nifty Chemicals ETF.

UNDERSTANDING THE NIFTY CHEMICALS INDEX

Since Kotak Nifty Chemicals ETF is a passive index on the Nifty Chemicals index, it would be illustrative to understand the Chemicals index better.

• Nifty Chemicals Index has a base value of 1,000 and base date of April-2005. It has 20 constituents and the index is rebalanced semi-annually.
• In terms of returns, the Nifty Chemicals Index has delivered 20.73% CAGR returns over 5 years and 19.86% CAGR since inception. That is impressive returns over a long period.
• The Chemicals index has a Beta of 0.74 vis-à-vis Nifty and its Nifty correlation is 0.70, which makes the chemical index a good tool for portfolio risk diversification.
• The sector trades at a P/E of 43.49X, P/BV of 4.2X, and dividend yield of 0.92%. The industry is expensively valued compared to the overall Nifty index.
• The top 5 constituents of the Nifty Chemicals Index in terms of weightage are Pidilite Industries, SRF Ltd, UPL Ltd, Solar Industries, and PI Industries. These 5 companies have a combined weightage of 52.08% in the overall index.

To sum up, the index has delivered above index returns, but that comes with the risk of higher valuations. However, the bet is on the growth potential in the near future.

GLANCE AT KOTAK NIFTY CHEMICALS ETF

Here are key details of the Kotak Nifty Chemicals ETF.

• NFO opened on October 23, 2025 and closes on November 06, 2025. This open-ended ETF will invest in a passive portfolio replicating the Nifty Chemicals Index.
• On the risk-o-meter, Kotak Nifty Chemicals ETF is classified as “Very High Risk,” due to its substantial exposure to equities in general and the chemicals sector in particular.
• Kotak Nifty Chemicals ETF is best suited to investors looking at a passive and disciplined approach to investing in a portfolio of top-quality chemical stocks in India.
• The benchmark for the fund will be the Nifty Chemicals Index TRI. Being a passive ETF, it will endeavour to replicate the index returns, net of cost. This entails tracking error risk.
• Minimum application amount in NFO is ₹5,000 and in multiples of ₹1 thereof. The fund supports structures like SIPs, SWPs, and STPs. It will offer Regular Plans and Direct plans and includes the Growth Option, Dividend Option, and Reinvestment option.
• Devender Singhal, Satish Dondapati, and Abhishek Bisen will be the dedicated fund managers for the scheme. There will be no exit load, being a passive fund scheme.

Kotak Nifty Chemicals ETF will be treated as an equity fund for tax purposes. Dividends will be taxed at the incremental rate of tax applicable to the investor. Short term capital gains – STCG (held for up to 12 months) will be taxed at 20.8% (including 4% cess). Long term capital Gains – LTCG (held for beyond 12 months), will be taxed at 12.5% after factoring in a base annual exemption limit of ₹1,25,000. There will be no indexation benefits available!