Small-cap stocks with innovative business models that mutual funds love to hold

Mutual fund companies have pioneered the identification of unique themes and the launch of new schemes. The latest on-trend is the innovation theme.
Over the last six months, there have been four fund houses, ICICI Prudential, Nippon India, Union and UTI, that have launched the innovation theme funds that aim to invest in innovative companies. Baroda BNP Paribas MF has also filed a draft to seek SEBI’s approval to launch this thematic fund.
These schemes identify companies across sectors that use innovation to enhance productivity, are involved in emerging technologies and disrupting businesses like e-commerce, fintech, renewable energy, AI, EVs, data analytics and cloud computing.
During the NFO launch of Nippon India Innovations Fund, Sailesh Raj Bhan, Chief Investment Officer of Nippon India MF said, “In the last 20 years, the world has seen many new business models being created, thanks to innovation. From products to services, one-time licences to subscription-based business models, from offline retail to e-commerce, on-site to the cloud, ICE (internal combustion) engines to electric vehicles (EVs), and so on. These shifts have been well-captured in the listed space in developed markets. However, India is yet to capture the value in these areas”. These schemes are likely to benefit by investing in these companies.
Because the next generation of innovative companies would most likely be found in the mid- and small-cap space, these schemes have significantly invested in the mid and small-cap stocks.
Here are the top 10 popular small-cap stocks among the four innovation theme-focused schemes. Stocks with higher allocation in their portfolio are also considered. Data as of October 2023. Source: ACEMF.

RateGain Travel Technologies
Industry: Computers - Software & Consulting
Who holds?: UTI Innovation and ICICI Pru Innovation

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Nazara Technologies
Industry: Digital Entertainment
Who holds?: UTI Innovation and Union Innovation & Opportunities

MTAR Technologies
Industry: Aerospace & Defense
Who holds?: UTI Innovation and Union Innovation & Opportunities

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Affle (India)
Industry: IT Enabled Services
Who holds?: Nippon India Innovation and UTI Innovation

Praj Industries
Industry: Industrial Products
Who holds?: UTI Innovation and Union Innovation & Opportunities

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CE Info Systems
Industry: Software Products
Who holds?: Union Innovation & Opportunities and UTI Innovation

Hitachi Energy India
Industry: Heavy Electrical Equipment
Who holds?: ICICI Pru Innovation and Union Innovation & Opportunities

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Indiamart Intermesh
Industry: Internet & Catalogue Retail
Who holds?: UTI Innovation and Union Innovation & Opportunities

Latent View Analytics
Industry: Computers - Software & Consulting
Who holds?: UTI Innovation

Neogen Chemicals
Industry: Specialty Chemicals
Who holds?: Union Innovation & Opportunities

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