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Tata Nifty India Tourism Index Fund: should you invest?

This article discusses the NFO of the Tata Nifty India Tourism Index Fund which is the first fund tracking the Nifty Tourism Index.

Tata Nifty India Tourism Index Fund: should you invest?


Posted on 10 Jul 2024
Author: Sayan Sircar
Tags: Tags Review ;  Mutual Funds
13 mins read
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This article discusses the NFO of the Tata Nifty India Tourism Index Fund which is the first fund tracking the Nifty Tourism Index.

Tata Nifty India Tourism Index Fund: should you invest?

Disclaimer: Image(s) from the Tata Mutual fund website is used for representational purposes only.

This article is a part of our detailed article series on new fund offerings (NFOs) in India. Ensure you have read the other parts here:

📚 Topics covered:

What are the details of the Tata Nifty India Tourism Index Fund NFO?

TATA Asset Management has launched an NFO for an index (passive) mutual fund tracking the Nifty Tourism Index in July 2024.

This fund is an index fund that passively tracks the Nifty Tourism Index. The Nifty Tourism Index is an index (like the SENSEX or Nifty 50) tracking the Tourism and Hospitality sectors in India.

The NFO period for this fund was from July 8 to July 19, 2024.

What is the Nifty Tourism Index?

As per the NSE website:
Nifty India Tourism Index aims to track the performance of stocks from the Nifty 500 Index which represent the travel and tourism theme

As per the index factsheet, the index details are as follows:

Metric Description
Methodology Free float-Weighted
No. of Constituents 17
Launch Date Jun 18, 2024
Base Date April 01, 2005
Base Value 1000
Calculation Frequency End of day
Index Rebalancing Semi-Annually

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Why did NSE launch the Nifty Tourism Index?

Year NSE Indices
2013 36
2014 38
2015 48
2016 57
2017 69
2018 76
2019 78
2020 77
2021 87
2022 94
2023 104
2024 107

NSE makes money by creating indices and licensing that data to AMCs to launch index funds, ETFs, and other mutual funds tracking the index. It is such a great business that the number of indices published by NSE has increased three times from Jan-2013 to Jan-2024.

NSE has launched this index for investors to take advantage of the post-COVID boom in travel, tourism, hospitality and restaurant businesses.

Which brands are in the Nifty Tourism Index?

If you look at the top 10 stocks in the Nifty Tourism Index, it is full of well-known travel and hospitality brands:

Stock Weightage % Selected Brand(s)
InterGlobe Aviation Ltd. 20.31 Indigo
Indian Hotels Co. Ltd. 19.26 Taj
Indian Railway Catering And Tourism 13.31 IRCTC
GMR Airports Infrastructure Ltd. 10.57 DEL/HYD Airports
Jubilant Foodworks Ltd. 9.54 Dominos Pizza, Dunkin’ Donuts
EIH Ltd. 4.04 Oberoi, Trident
Lemon Tree Hotels Ltd. 3.13 Lemon Tree
Sapphire Foods India Ltd. 3.01 KFC, Pizza Hut, Taco Bell
Devyani International Ltd. 2.90 KFC, Pizza Hut, Taco Bell
Westlife Foodworld Ltd. 2.49 McDonald’s

Warning: With 73% weightage to the Top 5 stocks and 88% weightage to the Top 10, this is not a diversified index. The performance impact of the Top 5, which are composed of well-known brands, will be the maximum.

Which stocks are in the Nifty Tourism Index?

As per the index factsheet, the stocks in Nifty Tourism Index are as follows

Company Name Industry Symbol
BLS International Services Ltd. Consumer Services BLS
Chalet Hotels Ltd. Consumer Services CHALET
Devyani International Ltd. Consumer Services DEVYANI
EIH Ltd. Consumer Services EIHOTEL
Easy Trip Planners Ltd. Consumer Services EASEMYTRIP
GMR Airports Infrastructure Ltd. Services GMRINFRA
Indian Hotels Co. Ltd. Consumer Services INDHOTEL
Indian Railway Catering And Tourism Corp Consumer Services IRCTC
InterGlobe Aviation Ltd. Services INDIGO
Jubilant Foodworks Ltd. Consumer Services JUBLFOOD
Lemon Tree Hotels Ltd. Consumer Services LEMONTREE
Mahindra Holidays & Resorts India Ltd. Consumer Services MHRIL
Restaurant Brands Asia Ltd. Consumer Services RBA
Safari Industries (India) Ltd. Consumer Durables SAFARI
Sapphire Foods India Ltd. Consumer Services SAPPHIRE
V.I.P. Industries Ltd. Consumer Durables VIPIND
Westlife Foodworld Ltd. Consumer Services WESTLIFE

The updated list is here: stocks.

Also read
How to calculate taxes from capital gains and combine them with your other income

How has the Nifty Tourism Index behaved in the past?

The Nifty Tourism Index was started with a base date of April 01, 2005 and a starting value of 1000. The performance chart below shows how this index has performed versus the broad market index Nifty 500 Total Return Index (total return = price changes plus reinvested dividends):

Performance of Nifty Tourism Index vs broad-market index (rebased)

It is important to note the underperformance prior to 2021 vs. the Nifty 500. We will revisit this point in the rolling excess-return charts.

How has the Nifty Tourism Index performed in terms of rolling returns and risk?

These rolling charts work on a window basis. Each point on the chart is calculated using a 3-year SIP like this:

  • Point 1: 1st Jan 2020 to 1st Jan 2023
  • Point 2: 1st Feb 2020 to 1st Feb 2023
  • and so on

3-year rolling SIP returns (fixed SIP) for the Nifty Tourism Index

Here, using the same rolling window concept, we have calculated the standard deviation of the monthly returns using 36 months:

3-year rolling risk for the Nifty Tourism Index

The rolling risk chart shows the inherent higher-than-parent volatile nature of the Nifty Tourism Index.

The risk-adjusted returns chart shows that for most of its life, the return per unit risk has been worse vs. the Nifty 500:

3-year rolling return per unit risk for the Nifty Tourism Index

An interesting observation from the rolling correlation (which measures how much the indices are similar to each other) chart:

3-year rolling correlation for the Nifty Tourism Index

It was expected, as the rolling correlation chart shows, that these stocks do not move in tandem with the broad Nifty 500 Index.

To understand how to use data to understand if this NFO is good or not:

Is it a good time to invest in the Nifty Tourism Index stocks?

We will show these charts for excess returns of Nifty Tourism Index over the Nifty 500 for both SIP and lump sum as well a chart on information ratio.

Difference of rolling 3-year SIP returns for Nifty Tourism Index

Difference of rolling 3-year lump sum returns for Nifty Tourism Index

Rolling 3-year information ratio for Nifty Tourism Index

Related:
Why SEBI wants mutual fund investors to learn about information ratio?

These three charts shows the clear reason why this index and NFO have been launched now. After years of marked underperformance, the Tourism and related stocks are finally doing better than the index.

Who should invest in the Tata Nifty India Tourism Index Fund?

“Investors should remember that excitement and expenses are their enemies.” - Warren Buffett

The recent outperformance of the Nifty Tourism Index vs. the Nifty 500 can be an incentive for the AMC to launch such a fund. However, if you are looking to invest, you need to understand which concept is more appealing to you:

  • momentum-based signal: since the Nifty Tourism Index is going up vs. the Nifty 500, it will go up further
  • mean reversion signal: since what goes up also comes down, the outperformance of this index vs. the Nifty 500 is an indicator that the trend will reverse soon

An investor who ticks one or more of the boxes below might consider investing:

☑ A keen follower of the Tourism and related sector news and companies

☑ Willing to invest a substantial portion of the portfolio (say 5% or more) as a satellite portfolio: What is a core-satellite portfolio and when can you use it?

☑ Would understand the inherent risks of theme-based investing

☑ Has research-based conviction on the entry and exit points for this theme

☑ Understands that thematic funds have tendencies of a sudden reversal that can wipe out all gains

Who should not invest in the Tata Nifty India Tourism Index Fund?

An investor who ticks one or more of the boxes below should not invest:

☑ Interested in this theme now that the index (and funds) exist

☑ Attracted by the recent high returns of this theme

☑ Has not done due diligence beyond reading about this index and funds online

☑ Will be investing a very small amount or will start a small SIP. Both indicate a lack of conviction and lead to portfolio clutter: How to clean up your mutual fund portfolio?

☑ Disagrees with the Warren Buffett quotation above

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This post titled Tata Nifty India Tourism Index Fund: should you invest? first appeared on 10 Jul 2024 at https://arthgyaan.com


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