1 December 2019 HDFC Growth Opportunities Fund (An open ended equity scheme investing in both large-cap and mid-cap stocks) This product is suitable for investors who are seeking*: • To generate long-term capital appreciation / income • Investment predominantly in Large- Cap and Mid-Cap companies *Investors should consult their financial advisers if in doubt about whether the product is suitable for them. “A diversified fund with controlled exposure to Large Cap & Mid Cap Stocks Note : The scheme has undergone change in fundamental attribute w.e.f May 23, 2018 and has become an open ended equity scheme investing in both large-cap and mid –cap stocks, prior to the change the fund was positioned as a large cap fund investing predominantly in large cap stocks. Please refer to scheme Information document & addendum available on www.hdfcfund.com / ISCs for further details.
Transcript
1
December 2019
HDFC Growth Opportunities Fund(An open ended equity scheme investing in both large-cap and mid-cap stocks)
This product is suitable for investors who are seeking*:
• To generate long-term capital appreciation / income
• Investment predominantly in Large- Cap and Mid-Cap companies
*Investors should consult their financial advisers if in doubt about whether the product is suitable for them.
“A diversified fund with controlled exposure to Large Cap & Mid Cap Stocks
Note : The scheme has undergone change in fundamental attribute w.e.f May 23, 2018 and has become an open ended equity scheme investing in both large-cap and mid –cap stocks, prior to the change the fund was positioned as a large cap fund investing predominantly in large cap stocks. Please refer to scheme Information document & addendum available on www.hdfcfund.com / ISCs for further details.
Source: *CMIE; The data before 2004-05 is based on splicing GDP.# Capitaline, Morgan Stanley Research, Bloomberg@ - March 04-March 19Refer disclaimers at the end of the presentation
Amount in Rs. crores
Factors supporting the Growth in India
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• Excellent demographics
• Rich in natural resources
• Large availability of skilled, young, English speaking and competitive manpower
• Low penetration of consumer goods and improving affordability
• Large unmet needs of infrastructure
• Strong reforms momentum
HDFC Mutual Fund/AMC is not guaranteeing returns on investments made in this scheme. The current investment strategy is subject to change depending onthe market conditions.Refer disclaimers at the end of the presentation
“The investor of today does not profit from yesterday’s growth.” - Warren Buffett
Indian Economy – Growth moderates, other parameters stable
Improving macros FY15 FY17 FY19 FY20E FY21E
Real GDP at market price (% YoY) 7.4 8.2 6.8 4.7 5.5
Foreign Exchange Reserves (USD bn) 341 370 412 454^ NA
Source: Kotak Institutional Equities, E-Estimates, ^ as of 13th Dec 19. na – not available• Auto sector, especially Passenger vehicles (PV), despite low penetration,
slowed down sharply in 2019. Sharp de-growth of production in autosector (~3-4% of GDP) was a key contributor to slowdown (slide 6-7)
• Slowdown was also observed across other segments like cement, airtravel, consumer durables, etc. (charts 2 to 4)
• Slides 6-7 explain the key reasons for slowdown, what was sustainingconsumption till now and growth outlook for FY21
• Over the past few years, most macro economic parameters are improvingor are stable; however growth has slowed down in FY20 (Table 1)
• Both consumption (58% of GDP) and investments (29% of GDP) sloweddown significantly in H1 FY20 (Chart 1)
Table 1
Chart 2 Chart 3 Chart 4
Sources: CMIE, Kotak Institutional Equities
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Chart 1
Slowdown demystified
• Core issue is degrowth in white collar private sector wages in real terms
‒ White collar wages, in real terms, have de-grown by 27% in 15 years(as measured by entry level IT salary)
‒ Average wage bill (salary per person) of a leading IT company hasgrown at CAGR of 2.9% only over FY04-FY19
‒ While real wages were weak for 10-15 years, consumption sustainedin this period, probably due to falling savings and debt ledconsumption
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A leading IT Company (INR
lakhs per annum)FY04 FY19 CAGR (%)
Real
growth
Typical Entry level (approx.) 2.0 4.0 4.7 -2.1
Average salary 11.5 17.7 2.9 -3.9
Average inflation 6.8
• Sharp increase in bankruptcy cases over last few years impacted wages / jobs for many#
‒ Over 2,500 companies were admitted under IBC till Sep’19, ~600 were closed by liquidation and ~1,500 are still under process
‒ Just the 22 companies / groups in IBC had ~60,000 employees
• Weak private investment. Large number of companies in capital intensive sectors like steel, power and Infrastructure are in IBC. This has resulted in
supply of ready assets below replacement cost; hence new asset creation was discouraged
• Slowdown, in our opinion, was also exaggerated due to sharper decline in wholesale volumes in auto sector due to high inventory with dealers in
FY19 and transition to BS VI norms from April 2020, that necessitated an inventory correction of old stock
• Challenges faced by NBFCs and erosion of wealth due to sharp correction in midcap/small caps also had an adverse impact
Sources: # IBBI.gov.in, Capitaline, Kotak Institutional Equities, Morgan Stanley
Why do we think Economic growth has bottomed ?
• Link between Auto sector and GDP slowdown – 2 sides of the same coin
‒ Auto sector accounts for ~3-4% of GDP; thus volume de-growth of ~15%-20% shavesoff 0.5% - 0.8% of GDP growth
‒ With inventory correction over, even if auto volumes are flat next year, GDP growth
should be higher by 0.5-0.8% in FY21, on this count alone
• Lower corporate tax cuts for new manufacturing units
‒ In a path breaking decision, government reduced the corporate tax rate to 15% forall new manufacturing units that commence production before Mar-23
‒ In our view, given the general time to set up new unit is 2 - 4 years and deadline ofMar-23 to avail tax benefit, private capex should improve in FY21, especially byMNCs
• Measures taken by Government & RBI
‒ Reduction in corporate tax rates & policy rates (135 bps in 2019);
‒ Multiple steps taken to resolve liquidity issues in NBFCs and Real estate;
‒ Focus on improving ease of doing business; India’s rank improved to 63 from 77 in2018 & 100 in 2017
• Post verdict on Essar steel case, most large assets in Power, steel, infrastructure etc. arelikely to be resolved under IBC in FY20. This should improve capex in FY21 as
‒ New owners of IBC assets are likely to incur incremental capex to optimise efficiencyetc. E.g.- Arcelor Mittal indicated capex of INR 80 bn in Essar
‒ For growth, now new units will have to be planned as no existing units are available
• With decline in interest rates (Table 1) and real estate prices (Chart 2), EMIs of home loanshave reduced, thus improving affordability
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^assuming 5% decline in real estate prices
2 years ago Currently Saving
Home Loan 40,00,000 38,00,000^
Tenor (In years) 20 20
Interest rate 9.2% 8.3%
EMI for home loan (36,376) (32,498) 10.7%
Sources: CMIE, ICICI Securities, PIB
Chart 1
Chart 2
Table 1
Road to USD 5 trillion (tn) economy gets a Rs 100 trillion (USD 1.4tn) Infra spending boost !
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• On 31st Dec, 2019, Government announced a massive thrust on Infra with doubling
of planned project pipeline (National Infrastructure Pipeline - NIP) to Rs 102 trillion
(tn) over next 6 years vs Rs 56 tn spent in last 6 years !
• The list of projects is part of a report prepared by a task force under the
chairmanship of the Economic Affairs Secretary
• Planned spending will be frontloaded between FY20-22E with focus on roads,
railways and urban infra while renewables will gain traction in later phases.
• Spending to be funded by Center 39%, States 39%, & Private sector 22%
• Out of Rs 102tn , projects worth Rs 43tn are already under implementation, Rs 20tn
are under development & another Rs 32tn are at conceptual stage
• Revival in real estate & manufacturing to drive GFCF CAGR of 15% between FY19-
24E compared to 10% between FY11-19 (Antique estimate)
• Infra spending boost along with Corporate tax rate cut (slide 9) announced earlier
will aid competitive edge to Indian manufacturing
5.3 6.3 7.0
8.5 9.2 10.2 10.0
13.6
19.5 19.0
13.8 12.8
11.1
3
8
13
18
23
13 14 15 16 17 18E 19E 20E 21E 22E 23E 24E 25E
Total Infra spend (Rs tn)
Source: Antique Stock Broking
Source: National Infrastructure pipeline, GOI
Source: Antique Stock Broking
Corporate Tax Rate Cut – Addressing the weak link
• India lagged China & other Asian countries in manufacturing (Chart 1)
‒ In 2018, China’s manufactured exports were ~8 times of India’s;
Even Vietnam’s manufactured exports, which is 1/10th the size of
India, are comparable with India’s manufactured exports (Chart 2)
Manufacturing – Opportunity knocks again for India
• Global companies are now looking to shift and diversify their supply chain
from China. This is driven by
‒ China’s edge of low costs has diminished with rising labor costs
‒ Cost of real estate has risen significantly in China
‒ Stringent environmental standards
‒ Increasing trade tensions with the US
• India was not a preferred destination compared to Asian countries despite
a large domestic market, improving ease of doing business, similar labour
costs, availability of skilled resources etc. mainly due to higher tax rates
• With the recent corporate tax rate cut (from 30% to 15%) for new
manufacturing units, India’s tax rate is now amongst the lowest in the
region. With this, manufacturing in India should get a boost (Chart 5)
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Sources: Kotak Institutional Equities, JM Financials, Bloomberg, JETRO
Chart 1 Chart 2
Chart 3 Chart 4
Chart 5
India – Entering into righteous circle of Growth
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• Government focus on economy to double
in size to $5 trillion
• Lowering in tax rate is likely to boost
profit growth, improve sentiments, kick-
start private capex and make India a
favourable investment destination.
• With lower tax rates, India can become an
attractive destination for relocating
manufacturing operations, which can spur
private capex cycle, boost wage growth
and thus, consumption
Righteous circle of Growth
Corporate Tax Rates as as per Finance Act, 2019 and Finance Act (No. 2) Act, 2019 read with The Taxation Law (Amendment) Ordinance, 2019 (Ordinance 2019) published in the Gazette of India on 20 September, 2019
Job Creation
Consumption
Private Capex
Refer disclaimers at the end of the presentation
Strategic sale route for PSU divestment – A big step forward
• Divestment experience through ETF’s has probably impacted PSU valuations
‒ Regular supply of PSU shares through various ETFs distorts market
demand and supply
‒ Share of PSU’s in Market cap has come down
‒ Discount offered on ETF’s creates interest amongst arbitragers &
short term investors as against long term investors. Of the Rs 91,600
crs ETF subscribed till Dec 2019 only Rs 18,200 crs is outstanding
• An announcement of a strategic sale in a large OMC suggests a significant
shift in strategy
• Strategic sale is a positive development. This should drive FDI in the country,
give additional resources to the government, reduce supply of paper by
government in equity & debt markets and increase competition in
marketplace benefiting consumers.
• If the ETF route is less preferred going forward, it should be positive for PSUs
Table 1 – Periods when10 year NIFTY Return trailed / exceeded
Nominal GDP Growth materially
Source: Kotak Institutional Equities, updated till 30th Nov, 2019, From 2005-18, NIFTY50 PE is based on 12 month forward estimated EPS. For 2019E, by KotakInstitutional Equities has calculated PE based on EPS numbers as of Mar-20 end, 2020E based on EPS of Mar-21 end and for 2021E based on EPS of Mar-22 end
Why invest in Large & Mid Cap Strategy
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-10
10
13 14 15 16 17 18
Earnings growth (TTM)
Broad Market Nifty
• Data suggests that over long periods, category average returnsfor large caps and mid / small cap are comparable globally aswell as in India. However, there are periods when mid / smallcap outperform largecaps and vice versa (Table 1).
• Outperformance during CY14-17 in Midcap / Smallcap indicesvs Largecap indices was driven mainly by P/E rerating and lessby higher profit growth. This probably led to an over valuationof mid / small caps. (Chart 1 & 2)
• Subsequently, with the correction in mid / small cap stocks in2018 & 2019, 10 year returns and valuations for Large caps andmid / small caps have converged. Hence, in our judgment, thereturns of large cap and mid / small cap should not divergematerially over the medium to long term.
• Also, the rally in NIFTY50 was a narrow rally. Top 5 stockscontributed to 152% & 81% of NIFTY 50 returns in CY18 & CY19respectively. In our judgment, such conditions will be shortlived and we expect markets to be more broad based.
Historical indicators are no guarantee of future results, Source: Morgan Stanley, MSCI data, Bloomberg, Broad Market as defined by Morgan Stanley stands for listed Indian companies with quarterly data for 8 or more quarters which comes to about 1200 companies.
MSCI EM Small Cap -1.1 -8.8 0.3 31.2 -20.3 3.0 0.7 0.7 5.1
MSCI EM -4.6 -17.0 8.6 34.3 -16.6 7.7 3.2 1.2 4.9
Refer disclaimers at the end of the presentation
Hence, to achieve better portfolio diversification across cycles, a blended portfolio with minimum 1/3rd allocation each to Largecap & MidCap stocks can offer better risk adjusted returns
• Large Cap composition will offer stability to the portfolio
• Mid Caps will target for superior return through stock selection
HDFC Growth Opportunities Fund - Investment Strategy
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The Fund targets to invest in a diversified portfolio of Large and mid sized companies with better growth potential
Controlled exposure to different market cap segments helps mitigate market cap bias risk.
• Minimum 35% Large Cap - More established companies with good track records
• Minimum 35% Mid Caps - Potential for faster growth
• The Fund will follow a bottom up strategy with no market cap bias for the balance portfolio (Refer Slide 18 for
current portfolio composition)
HDFC Mutual Fund/AMC is not guaranteeing returns on investments made in this scheme. The current investment strategy is subject to changedepending on the market conditions.
Refer disclaimers at the end of the presentation
Stock Selection Process of HDFC Growth Opportunities Fund?
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HDFC Mutual Fund/AMC is not guaranteeing returns on investments made in this scheme. The current investment strategy is subject to change depending onthe market conditions.
HDFC Growth Opportunities Fund focuses on businesses :
With potential to deliver above average earnings growth
That enjoy distinct competitive advantages and superior financial strength
That are trading at relatively attractive valuations
That have value unlocking potential
Refer disclaimers at the end of the presentation
A good growing business run by a competent management team can be a
potent combination for wealth creation
Top Stocks – Large Cap & Midcap - HDFC Growth Opportunities Fund
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Stocks/sectors referred above are not recommended by HDFC Mutual Fund/AMC. The Fund may or may not have any present or future positions in these sectors. For complete portfolio details refer www.hdfcfund.com. The portfolio composition as on November 30, 2019.
Top 5 Large Cap Stocks (%)
Top 5 Mid Cap Stocks (%)
The weighted average market capitalisation of the fund is approx. 210,687 crore Vs approx. 180,100 crore in
benchmark index (NIFTY Large Midcap 250 Total Returns Index)
The weighted average market capitalisation of the Large Cap exposure of fund is approx. 330,803 crore
The weighted average market capitalisation of the Mid Cap exposure of fund is approx. 16,361 crore
Name Of the Instrument Industry % to NAV
Indian Hotels Company Ltd. Hotels, Resorts And Other Recreational Activities 2.98
Trent Ltd. Retailing 2.76
Tata Global Beverages Ltd. Consumer Non Durables 2.35
PRESTIGE ESTATES PROJECTS LIMITED Construction 2.23
Max FInancial Services Ltd. Finance 2.05
12.37Total
Name Of the Instrument Industry % to NAV
ICICI Bank Ltd. Banks 8.88
State Bank of India Banks 8.70
Reliance Industries Ltd. Petroleum Products 6.77
NTPC Limited Power 6.59
Infosys Limited Software 5.41
36.35Total
Refer disclaimers at the end of the presentation
Fund Facts ( As on November 30, 2019)
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For complete portfolio details refer www.hdfcfund.com
Total Equity & Equity Related Holdings
- Large Cap
- Mid Cap
- Small Cap
98.8%
61.1%
36.7%
1.0%
Cash, Cash Equivalents and net Current Assets 1.25%
Stocks/sectors referred above are not recommended by HDFC Mutual Fund/AMC. The Fund may or may not have any present or future positions in these sectors. For complete portfolio details refer www.hdfcfund.com. The portfolio composition as on November 30, 2019. All opinions, figures, charts/graphs, estimates and data included in this presentation are as on date and are subject to change without notice. The statements contained herein are based on our current views and involve known and unknown risks and uncertainties that could cause actual results, performance or events to differ materially from those expressed or implied in such statements.
Source: NAV India, Portfolio details as on November 30, 2019# Based on other 23 schemes in large and mid cap category across industry.
Key overweight sectors
Utilities
• Capacity led growth
Corporate Banks & Financials
• Recognition phase of NPAs is largely over
• With falling slippages and increasing
resolution of NPAs provisioning costs are
expected to fall sharply
Energy
• Attractive valuation
Refer disclaimers at the end of the presentation
Sector
HDFC Growth
Opportunities Fund
(% Exposure)
Average of Other
Large and Mid cap
schemes (%
Exposure)
Benchmark (%
Exposure)*
Utilities 17.5 3.9 5.1
Energy 13.6 4.7 6.6
Corporate Bank & Financials 19.1 12.7 9.2
Consumer Staples 8.1 5.6 7.6
Real Estate 2.2 1.1 1.3
Information Technology 6.3 5.8 7.3
Consumer Discretionary 9.9 11.9 12.5
Communication Services 0.0 2.5 2.4
Materials 6.6 10.0 9.3
Health Care 2.1 6.1 7.1
Other Financial Services 0.0 4.3 2.6
Industrials 3.6 9.5 8.5
Retail Bank & Financials 9.8 17.6 20.5
Cash, Foreign Equity, Debt
Instruments, NCA and Others1.3 4.2 0.0
100.0 100.0 100.0
*Benchmark : NIFTY Large Midcap 250 Total Returns Index
HDFC Growth Opportunities Fund portfolio is positioned differently from other Large & Mid cap schemes
Product Features
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Type of Scheme An open ended equity scheme investing in both large cap and mid cap stocks
Inception Date February 18, 1994
Investment ObjectiveTo generate long term capital appreciation/income from a portfolio, predominantly invested in equity and equity related instruments. There is no assurance that the investment objective of the Scheme will be realized.
Fund Manager $ Mr. Vinay Kulkarni (Since June 28, 2014)
Investment Plans Regular Plan & Direct Plan
Investment Options Under Each Plan: Growth & Dividend. The Dividend Option offers Dividend Payout and Reinvestment facility
Minimum Application Amount
(Under Each Plan/Option)
Purchase: Rs. 5,000 and any amount thereafterAdditional Purchase: Rs. 1,000 and any amount thereafter
Exit Load
• In respect of each purchase / switch-in of units, an exit load of 1.00% is payable if units are redeemed / switched – out within 1 year from the date of allotment
• No exit load is payable if units are redeemed / switched – out after 1 year from the date of allotment• In respect of systematic transactions such as SIP , STP etc exit load prevailing on the date of
registration/enrolment shall be levied.
No Entry/ Exit Load shall be levied on bonus units and units allotted on dividend reinvestment.
For further details on load structure, please refer to the Scheme Information Document.
Benchmark NIFTY Large Midcap 250 Total Returns Index
$ Dedicated Fund Manager for Overseas Investments: Mr. Chirag Dagli since July 22, 2019For further details refer Scheme Information Document/Key Information Memorandum
Refer disclaimers at the end of the presentation
Asset Allocation Pattern
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Under normal circumstances, the asset allocation of the scheme’s portfolio will be as follows:
Type of InstrumentsMinimum Allocation(% of Total Assets)
Maximum Allocation
(% of Total Assets)
Risk Profile of the Instrument
Equity and Equity Related Instrumentsof Large and Mid Cap companies** of which:
- Large Cap Companies
- Mid Cap Companies
- Small Cap Companies
70
35
35
0
100
65
65
30
High
Debt Securities (including securitiseddebt) and money market instruments. 0 30
Low to Medium
Units issued by REITs and InvITs 0 10 Medium to High
Non-convertible preference shares 0 10 Low to Medium
** The investment universe of “ Large Cap, Mid Cap & Small Cap” shall comprise companies as defined by SEBI from time to time. In terms of SEBI circular (SEBI / HO/ IMD/ DF3/ CIR/ P/ 2017/ 114) dated October 6, 2017, the universe shall consist of company classification in terms of full market capitalization and that the Scheme will be required to adhere the following:- The list of stocks of companies prepared by AMFI in this regard will be adopted.- The said list would be uploaded on the AMFI website and would be updated every six months based on the data as on the end of June and December of each year or periodically as specified by SEBI.- Subsequent to any updation in the said list as uploaded by AMFI, the portfolio of the Scheme will be rebalanced within a period of one month.The Scheme may invest in the schemes of Mutual Funds in accordance with the applicable extant SEBI (Mutual Funds) Regulations as amended from time to time.
The Scheme may invest upto a maximum 35% of the total assets in Foreign Securities and upto 100% of its total assets in Derivatives.
Disclaimer
The presentation dated 31st December, 2019 has been prepared by HDFC Asset Management Company Limited
(HDFC AMC) based on internal data, publicly available information and other sources believed to be reliable. Any
calculations made are approximations, meant as guidelines only, which you must confirm before relying on them. The
information given is for general purposes only. Past performance may or may not be sustained in future. The current
investment strategies are subject to change depending on market conditions. The statements are given in summary
form and do not purport to be complete. The views / information provided do not have regard to specific investment
objectives, financial situation and the particular needs of any specific person who may receive this information. The
information/ data herein alone are not sufficient and should not be used for the development or implementation of an
investment strategy. The statements contained herein may include statements of future expectations and other forward-
looking statements that are based on our current views and involve known and unknown risks and uncertainties that
could cause actual results, performance or events to differ materially from those expressed or implied in such
statements. Stocks/Sectors referred in the presentation are illustrative and should not be construed as an investment
advice or a research report or a recommended by HDFC Mutual Fund / AMC. The Fund may or may not have any
present or future positions in these sectors. HDFC Mutual Fund/AMC is not guaranteeing any returns on investments
made in the Scheme(s). The data/statistics are given to explain general market trends in the securities market, it should
not be construed as any research report/research recommendation. Neither HDFC AMC and HDFC Mutual Fund nor
any person connected with them, accepts any liability arising from the use of this document. The recipient(s) before
acting on any information herein should make his/her/their own investigation and seek appropriate professional advice
and shall alone be fully responsible / liable for any decision taken on the basis of information contained herein. For
complete portfolio/details refer to our website www.hdfcfund.com
MUTUAL FUND INVESTMENTS ARE SUBJECT TO MARKET RISKS, READ ALL SCHEME RELATED DOCUMENTS CAREFULLY
