Hdfc Asset Management Co. Ltd. · NSE:HDFCAMC
Hdfc Asset Management — Investor Presentation (October 2022)
48 slides from Hdfc Asset Management's investor presentation, Oct 27, 2022
Slide 1: Choose a better route. HDFC Business Cycle Fund
1 Choose a better route. Aim to stay ahead with HDFC Business Cycle Fund HDFC Business Cycle Fund aims to invest in businesses likely on the cusp / midst of a favourable business cycle. Refer disclaimers on page 48 01
Slide 2: Nature of Business Cycles
Nature of Business Cycles 1 Peak (Stable growth at high levels) Business Activity Co nt (D ow sl ec in ra lin g g n c in ro io th) tio g w / th w s gro n n pa ) g isin Ex (R Slump (Phase of weak / no growth) Time Refer disclaimers on page 48 02
Slide 3: Nature of Business Cycles
Nature of Business Cycles 1 Key parameters Expansion Peak Contraction Slump Volume growth Rising Stable growth Declining / slow growth Phase of weak / no growth Pricing power Improving High Reducing Weak Competitive Low, businesses look Focus shifts on Low High intensity to increase market share pro
Slide 4: Various cycles at play
Various cycles at play 1 Expensive / reasonable / Expansion / contraction of attractive market valuations the economic growth Valuations and market Economic cycle cycle Greed / fear reflecting in Increase / Decrease in interest Investor retail and institutional flows sentiment rates by the central ban
Slide 5: One Sector, Multiple Business Cycles
One Sector, Multiple Business Cycles 1 One sector could harbor multiple businesses in different stages of business cycle Formulations 2 wheelers Medical CDMO /CRO* devices Electric Vehicles 4 wheelers / (across other cycles) cars Pharma / Auto & healthcare Auto Ancillaries Diagnostics API* Tractors
Slide 6: Why does business cycle investing make sense?
Why does business cycle investing make sense? 1 Higher confidence on forecasts Estimating positioning of various business cycles and their trajectory can be done with higher confidence vs the general economic cycle Correlation with valuations When businesses are in upcycle, investors get dual benefit o
Slide 7: Presenting HDFC Business Cycle Fund
1 Presenting HDFC Business Cycle Fund An open ended equity scheme following business cycle based investing theme Aim to stay ahead Refer disclaimers on page 48 07
Slide 8: Portfolio Strategy
Portfolio Strategy 1 Presenting Blend of top down and bottom up approach (page 9-10) Core of portfolio (>80%) would be companies likely on the cusp / midst of favorable business cycle, while avoiding companies about to enter/in a business downcycle Investment across large, mid and small caps Benchma
Slide 9: Top down approach – Factors considered
Top down approach – Factors considered 1 Presenting Macro indicators Business specific indicators Domestic GDP growth Outlook on growth An open Inflation ended&equity scheme Interest rates following business cycle based investing theme Competition in marketplace & Pricing power Policy environment Barg
Slide 10: Bottom up approach for stock selection
Bottom up approach for stock selection 1 Presenting Process-driven fundamental analysis and research Deep understanding of stocks within diverse business cycles (#case studies) Collaborate with independent domain experts An open ended equity scheme following business cycle based investing theme Aim
Slide 11: Case Study 1 - Indian IT Services
Case Study # 1 - Indian IT Services 1 Indian IT exports growth (US$ % YoY) 60% 50% Offshoring wave GFC Indian IT exports have grown at a robust 17% CAGR in the past 40% Post-GFC pickup twenty years: 30% Covid-led Digital 20% Dot com Dot com disruption acceleration FY02-08: Offshoring wave post Y2K l
Slide 12: Case Study 2 - Banks
Case Study # 2 - Banks 1 16 Presenting Steady reduction in NPAs since 2018 20 Gross NPAs (%) Net NPAs (%) Valuations moving largely in line with fundamentals 5 4.5 4 Bank Nifty P/B 3.5 12 3 2.5 8 2 1.5 4 1 An open ended equity scheme following business cycle based investing theme 0.5 0 0 2001 2002 2
Slide 13: Case Study 3 Auto – multiple business cycles (1/2)
Case Study #3 Auto – multiple business cycles (1/2) 1 1000 800 Presenting 2 Wheelers – multiples have seen correction due to rising EV threat 25 20 4 Wheelers – market leader saw expansion in multiples in a phase of large market share gains 55 50 60 50 600 15 45 40 400 10 30 40 20 200 5 35 10 0 - 30
Slide 14: Auto – multiple business cycles (2/2)
Auto – multiple business cycles (2/2) 1 Presenting Commercial Vehicles – a large player got re-rated post sharp market share gains over a span of few years Tractor - Valuations moved in line with industry growth trends Tractor - Valuations moved in line with industry growth trends 36 70.00 50.0% 30.
Slide 15: Case Study 4 – Pharmaceuticals – global pricing is key
Case Study # 4 – Pharmaceuticals – global pricing is key 1 Presenting US is the key earnings driver for the sector Sales mix % Generics pricing in the US is the key variable to track 40% 30% US generic pricing (yoy) 20% 10% 0% 40% 40% 41% 41% -10% 37% 37% 37% 36% 34% -20% An open ended equity scheme
Slide 16: Case Study 5 – E-commerce – very high trend growth
# 5 – E-commerce – very high trend growth 1 Online Shoppers (transacts on online retail platforms) ATUs (mn) 1200 400 1000 825 990 375 743 825 350 800 637 800 300 600 494 660 722 422 250 543 400 343 458 200 165 381 190 321 135 200 220 150 110 0 100 75 90 50 50 FY16 FY17 FY18 FY19 FY20 FY21 FY22 FY25
Slide 17: Case Study 6 - Capex cycles: 2000s vs 2010s. 2020s?
# 6 - Capex cycles: 2000s vs 2010s. 2020s? 1 (Rs bn) (Rs bn) (Rs bn) 4,500 14,000 1,400 ex CAGR 3% 4,000 Private cap 4% capex CAGR 12,000 3% 1,200 3,500 Priv a te + P S U C AGR 1 27% x R 10,000 ape AG 3,000 1% nt c 1,000 xC R 4 R 42% ernme pe AG Gov ca 2,500 ex C x CAG 8,000 800 ad cap cape Ro 2,000
Slide 18: Other Portfolio Attributes
1 Other Portfolio Attributes 18 22
Slide 19: Risk Management Metrics
Risk Management Metrics 1 Adequate diversification Aim to be reasonably diversified across sectors / sub sectors and across market capitalization Active approach likely to result in relatively lower portfolio overlap with the benchmark Could also result in exclusion of select sectors present in the be
Slide 20: Risk reward positioning
Risk reward positioning 1 Presenting Attribute Aims at returns higher than traditional fixed income instruments Aims to protect purchasing power, suitable Aims at wealth creation with dynamic asset Aims at wealth creation using diversified Aims at wealth creation by investing in business cycles Aims a
Slide 21: Product suitability
Product suitability 1 Presenting This product is suitable for investors who are seeking To generate long-term capital appreciation/ income via investment predominantly in equity & equity related instruments related to the business cycle theme To take advantage of having higher exposure to businesses
Slide 22: Large and experienced team with a rigorous investment process
Large and experienced team with a rigorous investment process 1 Rahul Baijal, Senior Fund Manager - Equities Experienced team: 28 Investment professionals with average experience of 18 years Experienced risk management team Wide and deep stock coverage ~ 400 stocks in the core list covering ~85% of
Slide 23: Know your Fund Manager
Know your Fund Manager 1 Mr. Rahul Baijal Senior Fund Manager - Equities Rahul has an experience spanning over 20 years in Equity Research and Fund Management. He joined HDFC Asset Management Company Limited in July’22. Prior to joining HDFC Asset Management Company Limited, Rahul spent 6 years with
Slide 24: Fund Facts
Fund Facts 1 Investment Objective To provide long-term capital appreciation by investing predominantly in equity and equity related securities with a focus on riding business cycles through dynamic allocation between various sectors and stocks at different stages of business cycles Fund Manager Mr.
Slide 25: Asset Allocation
Asset Allocation 1 The scheme will invest predominantly in equity and equity related securities with focus on riding business cycles through dynamic allocation between sectors and stocks at different stages of business cycles Under normal circumstances, the asset allocation (% of Net Assets) of the
Slide 26: Nature of cycles…
Nature of cycles… 1 Inevitable and regular Oscillating Self- / Follows correcting patterns 26
Slide 27: Some quotes
Some quotes Nature of cycles… 1 History doesn’t repeat itself, but it does rhyme – Mark Twain An Investor has to learn to recognize cycles, assess them, look for the instructions they imply, and do what they tell him to do – Howard Marks If we apply some insight regarding cycles, we can increase our
Slide 28: APPENDIX 1 Some more business cycle case studies
1 APPENDIX 1 Some more business cycle case studies 28 22
Slide 29: A - Global LNG
Nature A- Global of LNG cycles… Business Cycle 1 Global LNG prices tends to move in cycle largely driven by underlying Cyclical nature of Global LNG follows underly supplying cycle supply growth relative to demand 30 27 40 25 2012-16 was period of excess of 25 35 35 21 supply over demand by almost 2
Slide 30: B - Defence
Nature of cycles… B- Defence —increased capital spending and indigenization efforts are business tailwinds 1 (Rs bn) Defence purchases by Indian forces (Rs bn) 1,600 % 900 11 1,400 C AGR 800 C AGR 14% s e ous p urcha 1,200 700 Indige n % 1,000 CAGR 5 600 Indigenous purchase CAGR 3% 800 500 600 400 4
Slide 31: C - Metals
Nature of cycles… C - Metals - business cycles have large implications on sector outlook and earnings 1 (INR/ton) (US$/ton) 70,000 La rge Chi na 1,300 i nfrastructure La rge s ti mulus US:Chi na 60,000 i nvestment i n s ti mulus by Chi na rea s teel , tra de war 1,100 Chi na , Real-es tate ma jor es
Slide 32: APPENDIX 2 Economy and Equity Market outlook
1 APPENDIX 2 Economy and Equity Market outlook 32 22
Slide 33: Indian economy has grown steadily despite several challenges
Nature Indian of cycles… economy has grown steadily despite several challenges 1 Average Annual Real GDP Growth % Average Annual Inflation % 18 16 15 16 14 13 13 12 9 10 6 10 7 8 6 4 6 6 7 6 2 0 1980-89 1990-99 2000-09 2010-21 1980-89 1990-99 2000-09 2010-21E Operation Blue Star Global Oil Crisis - G
Slide 34: India Economy & Markets: Discussion points
India NatureEconomy & Markets: Discussion points of cycles… 1 1 2 3 4 5 Make in India to China Shift from Banks – Housing - benefit Indian +1 story is unorganized improving Affordability is manufacturing unfolding to organized NPAs and rising at a high segment players capital adequacy 6 7 8 9 10 Corp
Slide 35: Make in India / China +1 story unfolding
Make Natureinof India / China +1 story unfolding cycles… 1 India lost to China in scaling up manufacturing in last two decades Steps taken to boost domestic manufacturing Disruption due to Covid-19 has triggered an urgency to diversify global supply chain and many global MNCs are implementing China+
Slide 36: Unorganised share in India is large
Unorganised share in India is large 1 Sector Unorganised share Source Plywood 75% Greenply Company Presentation 1Q23 Air Coolers 70% Symphony Annual report FY21 Pipes 35% Astral Annual report FY22 Laminates 38% Greenlam Analyst Presentation 2022 Plastic Tanks 70% Astral Annual report FY22 Footwear R
Slide 37: India – Banking system relatively better placed
India – Banking Nature system relatively better placed of cycles… 1 Banking system - in good health with adequate capitalization and end of corporate NPA cycle. Credit growth is weak due to good corporate profitability and deleveraging. Higher inflation, low debt / equity ratio of corporates and broad
Slide 38: Housing – Better prospects
Nature of– cycles… Housing Better prospects 1 Over the past two decades, house affordability has improved Affordability ratio (Home loan payment / Income ratio) and is close to decadal best 60 (%) 56 58 53 50 50 48 49 50 44 44 With India Inc. moving towards a hybrid work model 40 36 38 37 38 35 34 3
Slide 39: Private capex outlook
Private capex Nature of outlook cycles… 1 Broad based improvement in profitability across major manufacturing sectors like metals, cement, sugar, textile, chemicals, paper, etc. Conducive environment for private capex Corporate leverage is near 10 year low Improved competitiveness vis –a – vis China
Slide 40: Startup ecosystem in India
Nature of Startup ecosystem cycles… in India 1 Indian startup ecosystem has seen significant progress over the past few years and has become a critical growth driver for India Name of Startups Period to become Unicorn India has overtaken China in number of new unicorns* in 2021 Naukri, Makemytrip 20
Slide 41: India - Well poised versus other economies
India Nature- of Well poised versus other economies cycles… 1 Structural tailwinds of demand, digitisation, demography and democracy hold India in good stead Amidst various challenges, GDP growth still expected to be higher than most economies Relatively low leverage should minimize the impact of ti
Slide 42: Medium term issues / Risks
Nature ofterm Medium cycles… issues / Risks 1 Elevated commodity prices – supply constraint, Ukraine, Deflationary impact of China’s manufacturing is fading Demand recovery, China Large fiscal and monetary stimulus in response to $10/bbl increase in oil impacts CAD by $13-15b pandemic to support deman
Slide 43: Unwinding of dovish monetary policies
Nature Unwinding of cycles… of dovish monetary policies 1 Ultra-loose monetary policies post GFC 2008 Benign interest rates and substantial liquidity infusion post pandemic supported asset prices Unwinding of dovish monetary policies to counter inflation could weigh on equity valuations Higher intere
Slide 44: Equity Market Valuations
Equity Market Nature Valuations of cycles… 1 Nifty 50 Valuations (P/E) Historical Valuations : NIFTY50 30 1 Year forward P/E : NIFTY 50 Avg Mean+1SD Mean-1SD 25 1 Year Forward P/E 20.9 20 15.9 15 NIFTY50 1 Yr Fwd P/E 10 10 Yr Average 17.6 Current 20.9 5 Oct-20 Oct-18 Oct-14 Oct-16 Oct-19 Oct-15 Oct-
Slide 45: Product Labelling
Product Nature ofLabelling cycles… 1 HDFC Business Cycle Fund (An open ended equity scheme following business cycle Riskometer # based investing theme) is suitable for investors who are seeking*: To generate long-term capital appreciation/ income Investment predominantly in equity & equity related i
Slide 46: Product Labelling
Product Nature ofLabelling cycles… 1 NAME OF THE SCHEME(S) THIS PRODUCT IS SUITABLE FOR INVESTORS WHO ARE SEEKING* RISKOMETER OF THE SCHEME(S)# HDFC Hybrid Debt Fund To generate long-term income/capital appreciation (An open ended hybrid scheme investing Investments primarily in debt securities, mon
Slide 47: Product Labelling
Product Nature ofLabelling cycles… 1 NAME OF THE SCHEME(S) THIS PRODUCT IS SUITABLE FOR INVESTORS WHO ARE SEEKING* RISKOMETER OF THE SCHEME(S)# HDFC Housing Opportunities Fund Capital appreciation over long term (An open ended equity scheme following housing and Investment predominantly in equity an
Slide 48: Disclaimer
Disclaimer Nature of cycles… 1 This presentation dated 27th October, 2022 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 guideli
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