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

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October 2019

HDFC Small Cap Fund

(An open ended equity scheme predominantly investing in small cap stocks)

Small is Powerful!

This product is suitable for investors who are seeking*:

• To generate long-term capital appreciation /income.
• Investments predominantly in Small-Cap companies.

*Investors should consult their financial advisers if in doubt about whether the product is suitable for them.

Riskometer

Table of Contents

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• Small Cap Universe
• Why Small Caps?
• Sector-wise presence – Large Cap vs Small Caps
• Correction of excesses in small cap segment
• Correction in small caps : Right time to invest ?
• Long Term approach to small cap investing
• Scope for bottom-up stock picking
• HDFC Small Cap Fund – Fund History, Portfolio Construct, Sector-Wise allocation, Portfolio

Turnover, Portfolio Diversification, Portfolio Statistics

• Scheme Performance
• Disclaimer & Risk Factors

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Small Caps

Small Cap Universe

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Parameters Details Small-Cap Universe Companies beyond 250th company in terms of full market capitalization Market Cap Range Rs 8,801 Cr and below (As of 30th June 2019) Allocation to Small- Cap Stocks 65%-100%

Large caps – 100 Companies Mid caps 150 Companies

Rs 28,920 Cr and above Rs 27,454 Cr to Rs 8,858 Cr Rs 8,801 Cr and below Classification as per SEBI circular on rationalization and merger of schemes.* Source: Classification as per SEBI circular (SEBI / HO/ IMD/ DF3/ CIR/ P/ 2017/ 114) dated October 6, 2017, wherein the universe of “Small Cap” shall consist of companies below 250th company in terms of full market capitalization. *AMFI - As on 30th June 2019. Stock cut off – Market Cap above Rs 150 Cr. 1204 small cap companies mentioned above are those small cap companies with market cap>Rs 150 Cr.

Large Universe provides more

• pportunities for alpha generation.

Why Small Caps?

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Scope for returns

• Size of the company increases
• Analysts start tracking stocks
• Institutional holding increases
• Better disclosure levels can lead to greater familiarity and high multiples
• As a result, smaller stocks which can be mis-priced get re-priced

Index Average Analyst Cove rage

NIFTY 50 Index 38 NIFTY Midcap 100 Index 16 NIFTY Small Cap 100 Index 8

Under Researched: Limited Analyst Coverage Under Owned: Lower Institutional Holding

Ownership Pattern amongst Index Constituents (%) Index Promoter Group Institutional Retail

NIFTY 50 Index 42 41 16 NIFTY Midcap 100 Index 55 28 17 NIFTY Small Cap 100 Index 50 24 26

For small cap stocks, company specific factors have a much higher impact than macro factors

Source: Bloomberg, HDFC AMC Internal Research, Company Reports Average analyst coverage is the average number of analysts covering each of the index constituents as on September 30th 2019. Ownership pattern as disclosed by index constituent companies to the NSE as on QE June 2019

Sector-Wise Presence – Large Caps vs Small Caps

Small Caps^ provides investment opportunities in segments of the economy which are not covered by Large Caps*.

Key Statistics NIFTY 50 NIFTY Small Cap 100 Number of Industries 21 28 Top 5 Industries (%) 76 45 Top 10 Industries (%) 91 67 Industries covered by NIFTY Small Cap 100 but not part of NIFTY 50

Data is As of 30th September 2019 Source : MFI Explorer . Sector classification as per AMFI. Classification as per SEBI circular (SEBI / HO/ IMD/ DF3/ CIR/ P/ 2017/ 114) dated October 6, 2017. The universe of “Large Cap” shall consist of companies up to 100th company in terms of full market capitalization. The universe of “Small Cap” shall consist of companies below 250th company in terms of full market capitalization. * As represented by NIFTY 50 Index, ^ As represented by NIFTY Small Cap 100 Index Stocks/sectors referred above are illustrative and are not recommended by HDFC Mutual Fund/AMC. The Fund may or may not have any present

• r future positions in these stocks/sectors. The above statements / analysis should not be construed as an investment advice or a research report
• r a recommendation to buy or sell any security covered under the respective sector/s .The same has been prepared on the basis of information,

which is already available in publicly accessible media.

NIFTY 50 : High Concentration in some industries

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10 15 20 25 30 35

BANKS SOFTWARE CONSUMER NON DURABLES PETROLEUM PRODUCTS FINANCE AUTO CONSTRUCTION PROJECT POWER PHARMACEUTICALS CEMENT TELECOM - SERVICES NON - FERROUS METALS CONSUMER DURABLES FERROUS METALS OIL MINERALS/MINING PESTICIDES TRANSPORTATION GAS TELECOM - EQUIPMENT &… MEDIA & ENTERTAINMENT AUTO ANCILLARIES CHEMICALS CONSTRUCTION FERTILISERS HEALTHCARE SERVICES HOTELS, RESORTS AND… INDUSTRIAL CAPITAL GOODS INDUSTRIAL PRODUCTS RETAILING TEXTILE PRODUCTS TRADING

% Weight in Index NIFTY 50 NIFTY Small Cap 100

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Correction of excesses in Small Cap segment

Source: HDFC AMC Internal Research, Bloomberg. All calculations as of September 30th 2019. Index Values rebased to 1st January 2004 which is the inception date of the NIFTY Small cap 100 index. Historical performance indications and financial market scenarios are not reliable indicators for current or future performance. Small Caps carry a higher risk of market fluctuations and are also prone to higher liquidity risks. Small caps are strictly not comparable to Large caps stocks. 7

200 400 600 800 1000 1200 1400 Sep-04 Sep-05 Sep-06 Sep-07 Sep-08 Sep-09 Sep-10 Sep-11 Sep-12 Sep-13 Sep-14 Sep-15 Sep-16 Sep-17 Sep-18 Sep-19

I ndex Values (Rebased to 1st Jan 2004)

NIFTY 50 TRI NIFTY Small Cap 100 TRI

Correction in Small Caps: Right time to invest?

Annualized Returns Number of I nstances % of I nstances

> 0 % 589 100% > = 10% 431 73% > = 15% 400 68% > = 20% 317 48%

NIFTY Small Cap 100 TRI Index witnessed 1 Year loss exceeding 10% in 589 instances since inception*. However, 3 Year CAGR from such days was always positive with returns greater than 15% p.a. in ~ 68% instances

NIFTY Small Cap 100 TRI: 3 Year CAGR after 1 Year loss exceeding 10%

* Data up to 30th September 2019. The above simulation is for illustration only. Past performance may or may not be sustained in the future. Mutual Fund/AMC is not guaranteeing returns on investments made in this scheme. 8

Long term approach to investing in small caps NIFTY Small Cap 100 TRI: Daily Rolling Returns Range

Source : MFI Explorer, Daily Rolling returns from inception of NIFTY Small Cap 100 TRI (1st Jan 2004) to 30th September 2019 Past Performance may not be sustained in future. Returns greater than 1 year period are compounded annualized (CAGR). Mutual Fund/AMC is not guaranteeing returns on investments made in any scheme.

As investment horizon increases, variability of returns reduces significantly. Long term approach to investing in small caps reduces volatility of returns.

166 72 32 23

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• 17
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(100) (50)

• 50

100 150 200

1 Year 3 Years 5 Years 10 Years

CAGR (% )

Maximum Minimum

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Returns of NIFTY 500 companies Top 100 101-250 251-500 >10x 1 6 5x-10x 1 9 26 3x-5x 15 27 35 2x-3x 15 31 38 50%-100% (2x) 28 16 28 Between 0 and 50 % 20 25 26 Between 0 and -20% 8 6 7 Between -20% and-50% 4 14 10 Less than -50% 5 17 43 NA * 4 4 31

Scope for Bottom up stock picking

Source : Bloomberg. Classification as per SEBI circular (SEBI / HO/ IMD/ DF3/ CIR/ P/ 2017/ 114) dated October 6, 2017. The universe of “Large Cap” shall consist of companies up to 100th company in terms of full market capitalization. The universe of “Small Cap” shall consist of companies below 250th company in terms of full market capitalization. Absolute Returns from 31st March 2014 to 31st March 2019 considered for NIFTY 500 Constituents as of 31st March 2014 * Includes companies which delisted, merged, liquidated during the period. Past performance may not be sustained in the future. Historical performance indications and financial market scenarios are not reliable indicator

• f current or future performance.

Wide dispersion of returns in small caps provides better scope for bottom-up stock picking Return range of NIFTY 500 Companies for the 5 year period from 31st March 2014 to 31st March 2019

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HDFC Small Cap Fund

Fund History and Investment Approach

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• Launched as Morgan Stanley A.C.E. Fund on April 3, 2008 as a multi-cap

fund.

• Scheme acquired by HDFC Mutual Fund in 2014* and fund repositioned as

HDFC Small & Mid-cap Fund with a focus on small and midcap stocks.

• Scheme repositioned** in November 2016 and renamed as HDFC Small

Cap Fund, with a focus on Small cap stocks. Fund History

• Focus on well managed small cap companies.
• Focus on quality metrics like ROCE & ROE, Cash flows

Investment Approach

• Invest predominantly in small cap companies.
• Identifying companies with reasonable growth prospects.
• Identify companies with sound financial strength and sustainable

business.

• Seek undervalued businesses.

Investment Strategy

*Scheme acquisition as on close of business hours on June 27th 2014. ** W.e.f. November 9th 2016 The current investment strategy is subject to change depending on the market conditions. Read Scheme Information Document for more details.

Portfolio Construct

• Invests at least 65% in small-cap companies.
• Targets high quality small cap business which are undervalued and have a sustainable business.
• Well diversified portfolio at all times.

Market Cap * ( In Rs. Crore) Weighted Average Market Cap ** (in Rs Crore)

Portfolio as on 30th September 2019. * Market Cap data as on September 30, 2019 from Capital Line. Equity Exposure of Fund rebased to 100% .Unlisted Securities not considered. HDFC Mutual Fund/AMC is not guaranteeing returns on investments made in this scheme. ** Weighted Average Market Cap as on September 30, 2019 (Source: Capital Line). The current investment strategy is subject to change depending on the market conditions. Benchmark: NIFTY Small cap 100 Index.

48 32 21 53 44 3

10 20 30 40 50 60 Less than Rs 5000 Crore Rs 5,000 Crore to Rs 10,000 Crore More than Rs 10,000 Crore

% of Net Assets

HDFC Small Cap Fund NIFTY Small Cap 100

6,290 5,347 3,000 3,500 4,000 4,500 5,000 5,500 6,000 6,500 HDFC Small Cap Fund NIFTY Small Cap 100

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Note : Top 10 Industries in the portfolio. Source:-Bloomberg (Sector classification as per AMFI). As of 30th September 2019.For detailed portfolio refer wwww.hdfcfund.com. The Fund may or may not have any present or future positions in these stocks/sectors. The above statements / analysis should not be construed as an investment advice or a research report or a recommendation to buy or sell any security covered under the respective sector/s .The same has been prepared on the basis of information, which is already available in publicly accessible media.

Scheme Sector-wise Allocation

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Alpha generation by maintaining portfolio differentiated from the benchmark

5 10 15 20 25 INDUSTRIAL MANUFACTURING FINANCIAL SERVICES IT SERVICES AUTOMOBILE CONSTRUCTION FERTILISERS & PESTICIDES MEDIA & ENTERTAINMENT PHARMA CHEMICALS CONSUMER GOODS ENERGY METALS TEXTILES HEALTHCARE SERVICES CEMENT & CEMENT PRODUCTS TELECOM

% of Net Assets

HDFC Small Cap Fund NIFTY Small Cap 100 Index

Differentiated portfolio

15 Source:-Bloomberg (Sector classification as per AMFI). As of 30th September 2019.For detailed portfolio refer www.hdfcfund.com. The Fund may or may not have any present or future positions in these stocks/sectors. The above should not be construed as an investment advice or a research report or a recommendation to buy or sell any security covered under the respective sector/s .

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• 3
• 3
• 6
• 8
• 10
• 12
• 10
• 8
• 6
• 4
• 2

2 4 6 8 10 INDUSTRIAL MANUFACTURING SERVICES AUTOMOBILE FERTILISERS & PESTICIDES MEDIA & ENTERTAINMENT IT CEMENT & CEMENT PRODUCTS CONSTRUCTION CONSUMER GOODS FINANCIAL SERVICES

% of Net Assets Overweight/ (Underweight)

Consistently Low Portfolio Turnover Ratio - High Portfolio Conviction

16 Source:-MFI Explorer .As of 30th September 2019.

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20 30 40 50 Sep-16 Oct-16 Nov-16 Dec-16 Jan-17 Feb-17 Mar-17 Apr-17 May-17 Jun-17 Jul-17 Aug-17 Sep-17 Oct-17 Nov-17 Dec-17 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

Portfolio Turnover Ratio %

Portfolio Turnover Ratio Average

19% 3%

Consistently Low Portfolio Turnover Ratio indicating high conviction in stock picking and long term approach to investing.

Well Diversified Portfolio

17 Source:-MFI Explorer .As of 30st September 2019 (Quarterly data used).

30 31 34 32 30 26 25 29 30 28 29 26 26 72 45 50 55 60 65 70 75

10 20 30 40 50 60 70 Sep-16 Dec-16 Mar-17 Jun-17 Sep-17 Dec-17 Mar-18 Jun-18 Sep-18 Dec-18 Mar-19 Jun-19 Sep-19

Number of Stocks Top 10 Holdings %

Top 10 % (LHS) Number of Stocks (RHS)

Risk Management through well diversified portfolio with low portfolio concentration

Parameter Average (Since Sep’ 16)

Top 10 holding (% of portfolio) 29% Number of stocks 63

Portfolio Statistics

18 * Risk Free Rate: 5.52% (Source FIMMDA MIBOR) Data is As of 30th September 2019 For complete portfolio, please refer www.hdfcfund.com The Fund may or may not have any present or future positions in these stocks/sectors. The above statements / analysis should not be construed as an investment advice or a research report or a recommendation to buy or sell any security covered under the respective sector/s .

Company Name % to NAV

Sonata Software Ltd. 3.30 DCB Bank Limited 3.07 NIIT Technologies Ltd. 3.05 Inox Leisure Ltd. 2.40 Chambal Fertilizers & Chemicals Ltd. 2.38 KEI Industries Ltd. 2.37 Balkrishna Industries Ltd. 2.36 Kalpataru Power Transmission Ltd. 2.34 Bajaj Electricals Ltd. 2.28 Indian Hotels Company Ltd. 2.26

Top 10 Holdings (Sep’ 19)

Top 5 Holding % 14.20% Top 10 Holding %. 25.81% Sharpe Ratio * 0.070 Beta 0.670 Portfolio Turnover Ratio (Last 1 Year) 2.80%

Portfolio Statistics

Segment % of Net Total Assets

Large Cap 4.1 Mid Cap 15.5 Small Cap 66.4

Segment-wise break up of equity holding

Taking the SIP Route

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• Imbibes financial discipline.
• Drops of water help fill a glass – Small and

regular investments build a corpus over time.

• Eliminates the need to time the markets.
• Enables setup and plan financial goals.
• Option to stop at anytime thus providing

flexibility.

• Aids in long term wealth creation.
• An open ended Fund with a well defined

portfolio strategy.

• Targeted allocation to small cap stocks

with good growth and earnings potential.

• Given the volatility that small caps bring

to the portfolio, an SIP helps weather such inherent volatility Why SIP Why SIP in HDFC Small Cap Fund

Fund Facts

Type of Scheme An open ended equity scheme predominantly investing in small cap stocks Inception Date (Date of allotment) April 3, 2008 Investment Objective To provide long-term capital appreciation /income by investing predominantly in Small-Cap companies. Fund Manager$

• Mr. Chirag Setalvad

Plans Direct Plan Regular Plan 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 thereafter Additional Purchase: Rs 1,000 and any amount thereafter Load Structure Entry Load: Not Applicable. Upfront commission shall be paid directly by the investor to the ARN Holder (AMFI registered Distributor) based on the investors’ assessment of various factors including the service rendered by the ARN Holder. 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 case of Systematic Transactions such as SIP, GSIP, STP, Flex STP, Swing STP, Flex index; Exit Load, if any, prevailing on the date of registration / enrolment shall be levied. Benchmark Index NIFTY Small cap 100 Index $ Fund Manager Overseas investment – Mr Chirag Dagli For further details, refer SID and KIM available on www.hdfcfund.com and at Investor Service Centres of HDFC Mutual Fund 20

Asset Allocation

The Scheme may invest up to 100% of its total assets in Derivatives. The Scheme may invest up to 35% of its total assets in foreign securities.

Type of Instruments Minimum Allocation (% of Total Assets) Maximum Allocation (% of Total Assets) Risk Profile of the Instrument Equity and equity related instruments

• f Small Cap companies**

65 100 High Equity and equity related instruments

• ther than Small Cap companies

35 High Debt Securities (including securitised debt) and money market instruments 35 Low to Medium Units issued by REITs and InvITs 10 Medium to High Non-convertible preference shares 10 Low to Medium Under normal circumstances, the asset allocation of the scheme’s portfolio will be as follows:

** Investment universe of “Small Cap”: The investment universe of “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 of “Small Cap” shall consist of 251st company onwards in terms of full market capitalization and that the Scheme will be required to adhere the following: The list of stocks of Small Cap 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. For further details, refer SID, KIM available on website www.hdfcfund.com and at Investor Service Centres (ISCs) of HDFC Mutual Fund.

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Scheme Performance

Value of Rs 10,000 invested Scheme Returns (%) Benchmark Returns (%) # Additional Benchmark Returns (%) ## Scheme Benchmark (Rs)# Additional Benchmark (Rs)## Last 1 year

• 6.47
• 8.10

6.31 9,353 9,190 10,631 Last 3 years 8.55

• 2.11

11.49 12,792 9,379 13,858 Last 5 years 10.97 3.53 8.93 16,834 11,897 15,344 Since inception 12.59 5.00 9.26 39,084 17,528 27,673 The above scheme has been managed by Chirag Setalvad, the fund manager since June 28,2014. The performance of the Scheme is benchmarked to the Total Return Index (TRI) Variant of the Indices. Past performance may or may not be sustained in the future. Returns greater than 1 year period are compounded annualized (CAGR). Load is not taken into consideration for computation of performance. #NIFTY Smallcap 100 ## NIFTY 50. Different plans viz. Regular Plan and Direct Plan have a different expense structure. The expenses of the Direct Plan under the Scheme will be lower to the extent of the distribution expenses / commission charged in the Regular Plan. Returns as on 30th September 2019

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Scheme Performance

Scheme Scheme managing since Cumulative Performance 1 year (in %) 3 year 5 year CAGR (in %) CAGR (in %) Chirag Setalvad manages 9 schemes Performance of Top 3 schemes managed by Mr. Chirag Setalvad HDFC Long Term Advantage Fund Jan 02, 01 6.18 10.05 9.44 S&P BSE SENSEX TRI 8.03 12.92 9.16 HDFC Mid Cap Opportunities Fund Jun 25, 07

• 0.5

4.38 10.12 NIFTY Mid Cap 100 TRI

• 5.61

2.43 8.17 HDFC Hybrid Equity Fund (Equity Assets) Apr 02, 07 6.94 7.99 9.83 NIFTY Hybrid Composite Debt 65:35 Index 9.03 10.15 9.13 Performance of Bottom 3 schemes managed by Mr. Chirag Setalvad HDFC Retirement Savings Fund - Equity Plan Feb 25, 16 4.44 8.56 NA NIFTY 500 TRI 3.69 9.44 NA HDFC Retirement Savings Fund – Hybrid Debt Plan (Equity Assets) Feb 25, 16 7.83 6.33 NA NIFTY 50 Hybrid Composite Debt 15:85 Index 12.63 7.86 NA HDFC Multi - Asset Fund (Equity Assets) Apr 02, 07 4.88 4.9 6.28

90% NIFTY 50 Hybrid Composite Debt 65:35 Index +10% Domestic Price of Gold

10.69 9.9 9.1

Performance of the Schemes are benchmarked to the Total Return Index (TRI) Variant of the Indices. Past performance may or may not be sustained in the future. Returns greater than 1 year period are compounded annualised (CAGR). The above returns are of Regular Plan - Growth Option. Load is not taken into consideration for computation of performance. On account of difference in the type of the Scheme, asset allocation, investment strategy, inception dates, the performance of these schemes is strictly not comparable. Top 3 and bottom 3 schemes managed by the Fund Manager have been derived on the basis of since inception returns vis-à-vis the benchmark. In case the benchmark is not available on the Scheme’s inception date, the returns for the concerned scheme is considered from the date the benchmark is available. Returns as on 30th September 2019. Different plans viz. Regular Plan and Direct Plan have a different expense structure. The expenses of the Direct Plan under the Scheme will be lower to the extent of the distribution expenses/ commission charged in the Regular Plan

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Asset Allocation

The presentation dated 14th October, 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.

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Thank You

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