Businesses Fund (Small Cap Fund An open ended equity scheme - - PowerPoint PPT Presentation

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IDFC Emerging Businesses Fund

(Small Cap Fund – An open ended equity scheme predominantly investing in small cap stocks)

NFO OPENING: 3rd February 2020 NFO CLOSING: 17th February 2020

GROWTH NEEDS PATIENCE

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3 Reasons to Not Invest in Small Caps 4 Reasons To Invest in Small Caps 3 Reasons to Invest Now Introducing the IDFC Emerging Businesses Fund

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3 Reasons to Not Invest in Small Caps 4 Reasons To Invest in Small Caps 3 Reasons to Invest Now Introducing the IDFC Emerging Businesses Fund

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Reason 1: Small Caps can Suffer from Deep Negative Returns

One could lose large sums in just one year

Source: Bloomberg, Data for TRI index Past performance may or may not be sustained in future. Data as on December 31, 2019

• 70%
• 42%
• 15%
• 24%
• 8%
• 100%
• 50%

0% 50% 100% 150% Dec'07 Dec'08 Dec'09 Dec'10 Dec'11 Dec'12 Dec'13 Dec'14 Dec'15 Dec'16 Dec'17 Dec'18 Dec'19 Calendar year performance - S&P BSE 250 Small Cap Index

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Reason 2: Investing Based on Past Performance is Dangerous

Don’t get lured by attractive past performance…it may not sustain!

Source: Bloomberg, Data for TRI index Past performance may or may not be sustained in future. Data as on December 31, 2019

79%

• 70%

132% 16%

• 42%

37%

• 15%

57% 2% 2% 56%

• 24%
• 8%
• 100%
• 50%

0% 50% 100% 150% Dec'07 Dec'08 Dec'09 Dec'10 Dec'11 Dec'12 Dec'13 Dec'14 Dec'15 Dec'16 Dec'17 Dec'18 Dec'19 Calendar year performance - S&P BSE 250 Small Cap Index

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Reason 3: Range of Possible Returns could be very Wide

Brace for higher volatility!

Image is only for illustration and is Not to scale. Source: Bloomberg, Data for index based on 3 year rolling returns from Jul’09 to Dec’19 – Large Cap: S&P BSE 100 TRI; Mid Cap – S&P BSE Mid Cap TRI; Small Cap: S&P BSE Small Cap 250 TRI Past performance may or may not be sustained in future. Data as on December 31, 2019

JH

Large Cap Small Cap

+32% +42%

• 3%
• 17%

+37%

• 11%

3 year rolling return

Range of Return

Mid Cap

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3 Reasons to Not Invest in Small Caps 4 Reasons To Invest in Small Caps 3 Reasons to Invest Now Introducing the IDFC Emerging Businesses Fund

8 Diagnostic services

E.g. Dr. Lal Pathlabs

Specialty Chemicals

E.g. Deepak Nitrite

Textiles

E.g. Vardhaman Textiles

Building materials

E.g. Kajaria Ceramics

Media

E.g. Entertainment Network

Digital

E.g. Just Dial

Illustrative: Unique Segments in the Small Cap Index

Reason 1: Benefit from Niche Opportunities

The sectors/stocks mentioned herein are only for illustrative purposes and should not be construed as a recommendation from IDFC Mutual Fund or indicative portfolio of any scheme of IDFC Mutual Fund. IDFC Mutual Fund may or may not hold any position in these sectors/stocks. Performance of the above sectors/stocks should not be construed as indicative yield of any of the schemes of IDFC Mutual Fund. Portfolio of the fund would depend on asset allocation and investment strategy as stated in Scheme Information Document and market conditions at the time of investment.

Participate in emerging businesses, unavailable in the large cap space

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Reason 2: Small Caps may be the Leaders of Tomorrow

Data as on December’19 Source: Bloomberg, Market capitalization data in INR cr; Images are not to scale The sectors/stocks mentioned herein are only for illustrative purposes and should not be construed as a recommendation from IDFC Mutual Fund or indicative portfolio of any scheme of IDFC Mutual Fund. IDFC Mutual Fund may or may not hold any position in these sectors/stocks. Performance of the above sectors/stocks should not be construed as indicative yield of any of the schemes of IDFC Mutual Fund. Portfolio of the fund would depend on asset allocation and investment strategy as stated in Scheme Information Document and market conditions at the time of investment.

Participate in the high-growth opportunities of future blue chips

2008 Today NBFC Bajaj Finance Footwear Auto Ancillaries Leisurewear/ Innerwear 1,562 2,54,784 1,807 22,512 249 9,226 539 26,029 Bata Minda Industries Page Industries

Market Cap Expansion

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Example 1: Minda Industries - Major Supplier to India’s largest PV Manufacturer

After generating -2% CAGR returns in the first 8 years, the stock has delivered 73% CAGR returns in the next 6 years

The sectors/stocks mentioned herein are only for illustrative purposes and should not be construed as a recommendation from IDFC Mutual Fund or indicative portfolio of any scheme of IDFC Mutual Fund. IDFC Mutual Fund may or may not hold any position in these sectors/stocks. Performance of the above sectors/stocks should not be construed as indicative yield of any of the schemes of IDFC Mutual Fund. Portfolio of the fund would depend on asset allocation and investment strategy as stated in Scheme Information Document and market conditions at the time of investment. PV: Passenger Vechile

Annual Return Earnings Per Share

0.0 2.0 4.0 6.0 8.0 10.0 12.0 14.0 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY 19

• 30%

38%

• 60%

155% 32%

• 50%

48%

• 10%

182% 65% 63% 327%

• 25%

9% CAGR 25%

• 100%
• 50%

0% 50% 100% 150% 200% 250% 300% 350% CY06 CY07 CY08 CY09 CY10 CY11 CY12 CY13 CY14 CY15 CY16 CY17 CY18 CY19 Annual Return CAGR

CAGR: -2% CAGR: 73%

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Example 2: Page Industries- Beneficiary of shift towards Premiumization

Between CY08 to CY19, stock has given a CAGR of 39%

The sectors/stocks mentioned herein are only for illustrative purposes and should not be construed as a recommendation from IDFC Mutual Fund or indicative portfolio of any scheme of IDFC Mutual Fund. IDFC Mutual Fund may or may not hold any position in these sectors/stocks. Performance of the above sectors/stocks should not be construed as indicative yield of any of the schemes of IDFC Mutual Fund. Portfolio of the fund would depend on asset allocation and investment strategy as stated in Scheme Information Document and market conditions at the time of investment.

Annual Return Earnings Per Share

0.0 50.0 100.0 150.0 200.0 250.0 300.0 350.0 400.0 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY 19 EPS

• 28%

160% 75% 57% 43% 51% 127% 14% 2% 87%

• 1%
• 7%
• 50%

0% 50% 100% 150% 200% CY08 CY09 CY10 CY11 CY12 CY13 CY14 CY15 CY16 CY17 CY18 CY19 Annual Return CAGR: 39%

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Reason 3: Actively managed Small Cap Funds have beaten Benchmark

Performance (CAGR) 1 Year 2 Years 3 Years 5 Years 7 Years 10 Years Category Average (Small cap funds) %

• 0.21
• 10.38

7.02 7.32 15.12 12.22 S&P BSE 250 Small Cap Index TRI %

• 8.44
• 16.39

3.13 3.19 7.10 4.59 Best Return (Category) % 19.38 4.25 15.06 13.21 22.86 17.5 Worst Return (Category) %

• 11.54
• 18.38

1.16 2.19 11.39 7.2 Alpha % 8.23 6.01 3.89 4.13 8.02 7.63

Source: MFI (All funds as per SEBI defined category of Small cap fund, except one fund in the category which was repositioned from a debt fund) Past performance may or may not be sustained in future. Schemes are compared to a common small cap index, i.e. S&P BSE 250 Small Cap Index Data as on December 31, 2019

Professional management has consistently delivered alpha in this category

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Source: SEBI Circular on Categorization and Rationalization of Mutual funds, dated October 6, 2017 and December 4, 2017. The market capitalization is subject to change on half yearly basis.

LARGE CAP (Top 100 stocks) MID CAP (101st - 250th stocks) SMALL CAP (251st Stock to 500th Stocks)

Reason 4: Small Caps offer the Widest part of the Market

Opportunity

Opportunity to select from a broad range of sectors and companies

S&P BSE 500 Over 500 other companies to choose from

+

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3 Reasons to Not Invest in Small Caps 4 Reasons To Invest in Small Caps 3 Reasons to Invest Now Introducing the IDFC Emerging Businesses Fund

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Price, Valuation and Volume indicate an attractive Entry Point

Small cap index has seen a significant correction, while large cap index has posted positive return! Valuations for Small Caps as compared to Large Caps now seem to be reasonable to attractive Small Cap index volumes tend to peak

• ut as market peaks

and vice versa; current volumes for Small Caps are closer to 2013 bottom levels

PRICE VALUATION VOLUME

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Reason 1: Small Caps are currently the most beaten down Segment

Source: Bloomberg, performance for total return index rebased to 1000 Data as on December 2019

1,145 878 692 500 600 700 800 900 1,000 1,100 1,200 Jan-18 Feb-18 Mar-18 Apr-18 May-18 Jun-18 Jul-18 Aug-18 Sep-18 Oct-18 Nov-18 Dec-18 Jan-19 Feb-19 Mar-19 Apr-19 May-19 Jun-19 Jul-19 Aug-19 Sep-19 Oct-19 Nov-19 Dec-19 S&P BSE 100 Index S&P BSE 150 Mid cap Index S&P BSE 250 Small cap Index

Significant gap between Large Cap and Small Cap index

Absolute Returns S&P BSE 100 Index S&P BSE 150 Mid Cap Index S&P BSE 250 Small Cap Index Since 1st Jan'18 15%

• 12%
• 31%

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Small Cap as a % of Large Cap Market Cap near Inflection

Source: Bloomberg, Data for S&P BSE 250 small cap versus Nifty 50 Past performance may or may not be sustained in future. Data as on December 2019

Current levels are closer to the levels seen in the previous down cycles from where they have mostly rebounded

8% 24% 10% 14% 21% 13% 5% 10% 15% 20% 25% Sep-05 Mar-06 Sep-06 Mar-07 Sep-07 Mar-08 Sep-08 Mar-09 Sep-09 Mar-10 Sep-10 Mar-11 Sep-11 Mar-12 Sep-12 Mar-13 Sep-13 Mar-14 Sep-14 Mar-15 Sep-15 Mar-16 Sep-16 Mar-17 Sep-17 Mar-18 Sep-18 Mar-19 Sep-19

Market Cap of Small Caps as % of Large Caps

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Reason 2: Small Caps show emerging signs of Value v/s Large Cap

Source: Bloomberg, PE: Price to Earnings Data as on December 2019

22.47 22.09 14.75 5 10 15 20 25 30 Jan-14 Jun-14 Nov-14 Apr-15 Sep-15 Feb-16 Jul-16 Dec-16 May-17 Oct-17 Mar-18 Aug-18 Jan-19 Jun-19 Nov-19 Positive PE S&P BSE 100 Index S&P BSE Mid cap Index S&P BSE 250 Small cap Index Average Smallcap PE

Average Positive PE of Small Cap index: 17.4

Small Cap index PE is available at a discount to its historical average PE

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Small Cap valuation is at a significant discount to Large Cap

Source: Bloomberg Data as on December 2019

14.75 22.47

• 50%
• 40%
• 30%
• 20%
• 10%

0% 10% 20% 30% 40% 50% 5 10 15 20 25 30 Jan-14 Jun-14 Nov-14 Apr-15 Sep-15 Feb-16 Jul-16 Dec-16 May-17 Oct-17 Mar-18 Aug-18 Jan-19 Jun-19 Nov-19 Discount to Large cap (%) Positive PE Discount, when more than historical average (RHS,%) S&P BSE 250 Small cap Index S&P BSE 100 Index Average Discount to Large cap (RHS)

Average Discount : -15%

Small Cap index PE is trading at 2X discount to its average

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Reason 3: Shrinking Volumes typically indicate Market nearing Bottom

Source: Bloomberg, S&P BSE 250 small cap Index Volume in million Data as on December 2019

Historically, Small Cap index volumes at the bottom are lower by 65-70% as compared to the previous peak Start Date End Date Phase Duration (Days) Start Date Volume End Date Volume % Change Index Return Apr-07 Jan-08 Bull 254 28.7 97.8 241% 81% Jan-08 Dec-08 Bear 349 97.8 30.8

• 69%
• 70%

Dec-08 Feb-10 Bull 427 30.8 139.8 354% 123% Feb-10 Aug-13 Bear 1,267 139.8 36.5

• 74%
• 37%

Aug-13 Jun-14 Bull 328 36.5 116.8 220% 89% Jun-14 Jan-17 Bear 917 116.8 44.1

• 62%

12% Jan-17 Feb-18 Bull 399 44.1 112.0 154% 42% Feb-18 Sep-19 Bear 602 112.0 37.8

• 66%
• 28%

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Past Return may work as a Contra Indicator

Source: MFI, Data for S&P BSE Small Cap 250 Index considered fromSep’05 to Dec’19 Data as on December 2019 Past performance may or may not be sustained in future

Past 1 year negative return may lead to a better return over the next 5 year period

13.70% 13.10% 5.90% 2.90%

• 25% & below

0 to -25% 0 to 25% 25% & above

Next 5 year Return (CAGR) 1 year Return

Today, we are in the negative zone

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3 Reasons to Not Invest in Small Caps 4 Reasons To Invest in Small Caps 3 Reasons to Invest Now Introducing the IDFC Emerging Businesses Fund

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Investment Strategy

Buy and Hold (Strategic) Opportunistic (Cyclical) New Businesses (IPOs)

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Stock Selection Process – Quality & Growth

QUALITY GROWTH

Cash Generating Superior Return on Capital Ability to repay Debt Medium term growth visibility &

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Managing Risks

*This would however depend on market conditions at the time of investment. Asset allocation and investment strategy will be as per provisions of Scheme Information Document

RISK MITIGATION

Liquidity Drawdown Governance

Top 10 stocks <45% of Net Assets* Diversified Portfolio of Stocks* Gradual scaling up of positions will help reduce the impact of adverse incidents

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WHO SHOULD INVEST?

Investors looking for

• pportunities in Niche or

Unique segments Investors looking to identify the possible Large Caps of Tomorrow Investors seeking fund with High Return Potential (albeit with higher risks)

Who should Invest?

Suitable for investors with high risk appetite and a long investment horizon; not for 1st time/conservative investors

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• Participate in niche opportunities
• Buy the potential leaders of tomorrow
• Active management adds alpha
• Access to broader markets

A Quick Recap

• Significant price correction v/s Large cap
• Attractive valuation v/s Large cap
• Lower volumes indicate market nearing bottom

Why invest in Small Caps Why Now Portfolio Construct Be aware

• f the Risks
• Buy & Hold + Opportunistic + IPOs
• Quality + Growth
• Emphasis on risk management
• Small Caps could witness deep negative returns
• Rear view mirror investing is dangerous
• Wide range of possible returns

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NFO detail

Small Cap Fund – An open ended equity scheme predominantly investing in small cap stocks Fresh Purchase - Rs.5000/- & in any amount thereafter Switch from IDFC Overnight Fund on closing date NFO Opens: 3rd February 2020 NFO Closes: 17th February 2020 S&P BSE 250 Small Cap TRI 1% if redeemed/switched

• ut within 1 year from the

date of allotment

Nature NFO Dates Switch Minimum Application Amount Benchmark Exit Load

• Mr. Anoop Bhaskar

Fund Manager*

*Overseas investment will be managed by Mr. Viraj Kulkarni

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Disclaimer: MUTUAL FUND INVESTMENTS ARE SUBJECT TO MARKET RISKS, READ ALL SCHEME RELATED DOCUMENTS CAREFULLY.

The Disclosures of opinions/in house views/strategy incorporated herein is provided solely to enhance the transparency about the investment strategy / theme of the Scheme and should not be treated as endorsement of the views / opinions or as an investment advice. This document should not be construed as a research report or a recommendation to buy or sell any

• security. This document has been prepared on the basis of information, which is already available in publicly accessible media or developed through analysis of IDFC Mutual Fund. The

information/ views / opinions provided is for informative purpose only and may have ceased to be current by the time it may reach the recipient, which should be taken into account before interpreting this document. The recipient should note and understand that the information provided above may not contain all the material aspects relevant for making an investment decision and the stocks may or may not continue to form part of the scheme’s portfolio in future. The decision of the Investment Manager may not always be profitable; as such decisions are based on the prevailing market conditions and the understanding of the Investment Manager. Actual market movements may vary from the anticipated trends. This information is subject to change without any prior notice. The Company reserves the right to make modifications and alterations to this statement as may be required from time to time. Neither IDFC Mutual Fund / IDFC AMC Trustee Co. Ltd./ IDFC Asset Management Co. Ltd nor IDFC, its Directors or representatives shall be liable for any damages whether direct or indirect, incidental, punitive special or consequential including lost revenue or lost profits that may arise from or in connection with the use of the information.

This product is suitable for investors who are seeking*:  To create wealth over long term  Investment in equity and equity related instrument of small cap companies *Investors should consult their financial advisers if in doubt about whether the product is suitable for them.

IDFC EMERGING BUSINESSES FUND (Small Cap Fund – An open ended equity scheme predominantly investing in small cap stocks)

IDFC Overnight Fund An open-ended Debt Scheme investing in overnight securities