Sundaram Select Thematic Funds Financial Services Opportunities - - PowerPoint PPT Presentation

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Sundaram Select Thematic Funds Financial Services Opportunities - - PowerPoint PPT Presentation

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Sundaram Select Thematic Funds Financial Services Opportunities June 2012 Refer Disclaimer on slide: 28 For Private Circulation Only Product Positioning Positioning: Thematic investment option Investing in stocks based on the Banking,

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SLIDE 1

Sundaram Select Thematic Funds Financial Services Opportunities

June 2012

Refer Disclaimer on slide: 28

For Private Circulation Only

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SLIDE 2
  • Positioning:

Thematic investment option ‐ Investing in stocks based on the Banking, Financial Services and Insurance (BFSI) theme

  • Approach:

Dedicated vehicle to play the financial services theme that will drive India growth over the next decade.

  • Style:

Aggressively managed funds with sector, stock, trading and cash calls as well as a call to stay outside the theme to the extent permitted if conditions warrant.

  • Benchmark:

CNX Banks Index

  • Cap

curve: Thematic

  • pportunities

across the cap curve; Expansion

  • f

financials services.

  • Enabler:

up to 35% outside the theme. Investment outside the theme shall be only in large cap stocks preferably within the Nifty

Product Positioning

For detailed disclosures on risk factors and disclaimers refer slide 28

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SLIDE 3

Latest portfolio

Company Weight ICICI Bank 12.0 State Bank of India 10.3 HDFC Bank 10.0 Axis Bank 9.2 Punjab National Bank 7.4 Bank of Baroda 5.7 Karur Vysya Bank 3.4 Indian Bank 3.3 I D F C 2.9 Bajaj Auto Finance 2.4

Cap-Curve Definition

Cap Curve Range (In Crore) Large > 24,459 Mid Between 24,459 and 9,841 Small < 9,841

Equity 94.2 Fixed Income ‐ Derivatives ‐ Cash & Equivalents 5.8 Avg AUM ( In Rs. Crore) 202

As on June 30, 2012; Source: Fact Sheet

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SLIDE 4

Allocation: Banks & Financial Services

  • Since launch of the Fund, the portfolio is completely within the

theme

  • The emphasis stays on the banking and financial services space with an increasingly pronounced bias

towards the former – the distribution is at 80% and 14% respectively

  • Though there are some regulatory headwinds which are seen in the

Financial Services space, a downward trend in the interest rate cycle will be positive.

As on June 30, 2012; Source: Fact Sheet

Jul-08 Jun-12

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SLIDE 5

Allocation: Public Sector & Private Sector

  • The valuation looks attractive for both PSU & private sector banks
  • The NPL cycle will peak in about two quarters and the PSU banks might benefit in terms of higher

recoveries

  • As more clarity emerges in the power and other infra policy framework, few private sector banks might

get rerated Jul-08 Jun-12

As on June 30, 2012; Source: Fact Sheet

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SLIDE 6

Cash Allocation

  • The fund was launched in June 2008, when the global financial crisis was unfolding.
  • This led to a slow deployment of funds into the equity space. Considering the cash levels since June 2009

till date, the fund has always stayed close to fully invested and the average cash levels since June 2009 to June 2012 was 5.4%.

  • The fund avoids taking cash calls and will have less turnover ratio.

As on June 30, 2012; Data Source: Bloomberg; Computation: In-house

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SLIDE 7

Wealth creation

Past Performance may or may not be sustained in future

Period Change in NAV Annualised Return Fund Benchmark CNX 500 Fund Benchmark CNX 500 Since Launch 75.1 77.8 16.8 14.8 15.2 3.9 Last 3 years 32.7 40.9 20.2 9.9 12.1 6.3 Last 2 years 0.8 9.3 ‐5.7 0.4 4.5 ‐2.9 Last 1 year ‐11.6 ‐8.0 ‐7.8 ‐11.6 ‐8.0 ‐7.8

Returns in per cent; using NAV of Growth option. Annualised returns are computed using Compounded annual basis Returns as on Jun 30, 2012

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SLIDE 8

Value of early investment

Value in Rs as on June 30, 2012 Past Performance may or may not be sustained in future

Jun 2012

Value of Rs10,000 invested in June 2008

Fund: Rs 17,514 Benchmark: Rs 17,785 S&PCNX 500: Rs 11,863

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SLIDE 9

SIP Performance

Period Investment Fund Benchmark S&P CNX 500

Since Inception Returns

10.6% 13.9% 4.5%

Since Inception Value

48,000 59,349 63,226 52,561

Last 3 years

36,000 36,369 38,283 34,142

Last 2 years

24,000 22,536 23,836 22,213

Last 1 year

12,000 12,211 12,753 11,826 The fund has beaten the broad market S&P CNX 500 at all periods while investing Rs 1000‐a‐month in SIP.

Value in Rs as on June 30, 2012 Past Performance may or may not be sustained in future

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SLIDE 10

Performance Analysis

Data source : Bloomberg; Computation: In-house ; As on June 30, 2012 Past Performance may or may not be sustained in future

Comparisons made vis‐à‐vis CNX 500 Risk‐Return Metrics are based on month end NAVs since launch and have been annualised. The risk free rate considered for analysis is 8.09% per annum (10 year T‐Bill) Parameter Fund Alpha 10.53 Correlation 0.85 Tracking Error 18.15 Information Ratio 0.58 Parameter Fund Benchmark Average Annual Mean 19.02 8.51 Standard Deviation 34.28 31.20 Beta 0.93 1.00 Sharpe Ratio 0.32 0.01 Sortino Ratio 0.78 0.02 Treynor Ratio 11.69 0.42

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SLIDE 11

Portfolio Manager

Experience

  • A seven‐year stint at Canara Bank was

followed by a shift to the asset management industry through Canbank Mutual Fund (now Canara Robeco)

  • Over two decades of tracking the

financial markets Educational Background

  • Cost Accountant
  • Post ‐Graduate in Commerce

Hobbies

  • To read books and enjoy watching sport

J Venkatesan

Fund Manager – Equity Funds Managed: Sundaram Growth, Sundaram India Leadership, Sundaram Rural India, Sundaram Tax Saver Sundaram Select Thematic Fund Entertainment Opportunities and Sundaram Select Thematic Fund PSU Opportunities

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SLIDE 12

Fund Facts

Source: Fact Sheet

Allotment Date June 2008 NAV (June 30, 2012) Growth: Rs 17.5143 Dividend: Rs 11.2296 Plans / Options Regular & Institutional / Growth, Dividend Payout , Re‐investment & Sweep Minimum Subscription Amount Regular Plan First Investment: Rs 5000 Subsequent Purchase: Rs 500 Institutional Plan First Investment: Rs 5000 Subsequent Purchase: Rs 500 SIP Rs 250 per month Rs 750 per quarter Rs 1000 per week Weekly SIPs processed on Wednesdays Asset allocation Equity instruments relevant to the theme (including investment in derivatives): 65%‐100%

  • Equity

instruments

  • utside

the theme (including investment in derivatives): 0% ‐ 35% Fixed income and money market instruments: 0%‐ 15%. Exposure in derivative shall not exceed 50% of the portfolio. The scheme may invest up to a 35% of the net assets in overseas securities Objective Seek capital appreciation (For detailed investment objective refer disclaimer) Load Structure Terms of Offer NAV Exit Load 1% if redeemed within twelve months from the date of allotment

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SLIDE 13

Key Arguments

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SLIDE 14

Why Financial Services theme now?

  • Banks are aiming at maintaining a diversified loan book and loans are not concentrated
  • nly to SMEs, power and other sensitive sectors
  • There is more retail assets due to toughened regulatory environment
  • Banks are leveraging its branch network to source retail assets.
  • Fee based income to rise
  • Banks are targeting to improve their CASA ratio through branch expansion and other

product innovation

  • The sector is undergoing a lot of structural changes which are positive in the medium to

long term. The PSU banking system has gone for system based NPL recognition and the whole system will go to dynamic provisioning system soon.

  • Though some regulatory headwinds are being seen in the NBFC sector, their play in the

niche segment will benefit during the downward interest rate cycle

  • Inflation and interest rates might come down during the year and

the Banking sector tend to perform better when there is downward interest rate cycle

  • The banking system will re‐emerge much stronger and accordingly the multiples they are

trading at might go up in the future.

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SLIDE 15

Financials are a proxy to India growth story

  • Leading indicators show a positive

growth momentum

  • Core inflation will fall further
  • Fiscal slippage to be more minimal

FY 12 FY 13 Real GDP Growth 6.9% 7.3% WPI Inflation 6.9% 6.5% Credit Growth 16.8% 17.0% Deposit Growth 13.0% 16.0% Growth in Money Supply 13.0% 15.0%

Comparison of FY12 and RBI projection for FY 13

Source: CEIC and Nomura Global Economics Source: CLSA

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SLIDE 16

Deposit & Non Food Credit Growth inching up

Non-Food Credit Growth Growth in Deposits

Source: RBI, Bloomberg, Sundaram Asset Management Research

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SLIDE 17

Net Interest Margin of banks to improve

  • Banks are likely to reduce their deposit rates and lower their lending rates. Implementation
  • f the base rate would ensure less volatility in the NIMs
  • A benign competitive environment will help banks to maintain their margins
  • Banks with a higher CASA ratio and who have a more balanced maturity profile in terms of

their assets and liabilities are positioned better

Source: RBI, Bloomberg, Sundaram Asset Management Research

CASA %

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SLIDE 18

NPL cycle to peak in next 2 quarters…

  • Banks to put in place a robust mechanism for early detection of signs of distress
  • System recognition of NPAs driving spurt in NPA, non priority sector asset quality still

healthy

  • Banks to have proper system generated segment‐wise data on their NPA accounts, write‐
  • ffs, compromise settlements, recovery and restructured accounts
  • Basel 3 norms will make the banks more safer

Gross NPA – global comparison - 2011 GDP Growth and bank NPL

Source: RBI & Deutsche Bank

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SLIDE 19

Structural Drivers in place

  • India has been a credit starved market
  • GDP growth strong and economic outlook positive. For bankers, with the pick up in credit growth,

pricing power has returned

  • This portends improved NIMs for banks in the near term
  • Post the crisis period (FY 08) Indian Banks have been growing

faster than Foreign Banks

GDP Growth – India & the World

Source : Morgan Stanley

22.1 34.6 22.9 19.0 9.4 18.2

5 10 15 20 25 30 35 40 Indian Banks Foreign Banks Sector Total

FY05-FY08 FY09-FY12

Asset Growth of Banks

Source : Sundaram Asset Management Research

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SLIDE 20

Infrastructure Development

  • Credit growth in the system will remain robust over the next decade
  • Steel consumption and cement dispatches have picked up, led by a pick up in rural/semi

urban housing and road construction

  • Interest rate cut will lead to pick up in the investment activity from the current depressed

levels

Source: CLSA; Asia Pacific Market

NHAI Project Awards over the quarter

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SLIDE 21

Banks – Interest Rate Proxy?

3 4 5 6 7 8 9 10 Apr-05 Aug-05 Jan-06 May-06 Oct-06 Mar-07 Jul-07 Dec-07 Apr-08 Sep-08 Jan-09 Jun-09 Nov-09 Mar-10 Aug-10 Dec-10 May-11 Oct-11 Feb-12

  • 100
  • 50

50 100 150 200 Repo Reverse repo Bankex Return (RHS)

Banks tend to perform better when there is downward interest rate cycle

Source: RBI, Bloomberg, Sundaram Asset Management Research

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SLIDE 22

Valuations Positive

Banking stocks have declined due to the impact

  • f

rising interest rates

  • n

loan growth, NIM and asset quality PE (X) Net NPA (%) Restructured Loans FY12 E FY13E FY12 E FY13E Dec‐2011 Public Sector Banks State Bank of India 8.3 6.5 2.4 1.5 3.1 Punjab National Bank 6.2 5.9 1.0 0.9 5.9 Bank of Baroda 6.5 5.7 0.5 0.5 3.3 Bank of India 8.1 6.4 1.3 1.1 5.9 New Gen. Private Sector Banks Axis Bank 12.8 11.3 0.4 0.5 1.8 ICICI Bank 11.5 9.6 0.8 0.6 1.2 HDFC Bank 23.0 17.8 0.2 0.3 ‐ Kotak Mahindra Bank 23.8 17.5 0.6 0.5 ‐

Source: Bloomberg, Sundaram Asset Management Research

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SLIDE 23

Imminent Choice

Brokerages Home Lenders Private Sector Banks N B F C Specialised Financial Institutions Proxy Plays on Insurance Public Sector Banks Proxy Plays on Asset Management Micro Finance Stock Exchanges Asset Management Life Insurance Financial Distribution Web-based services General Insurance Service Intermediaries

Available choice

Banks – only a part of the Financial Services story…

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SLIDE 24

Summary

  • Financials are a proxy to India’s growth story. Given the low penetration both on

the liability side and

  • n

the asset credit side (Credit to GDP ratio), we think financials will continue to outperform in the medium to long term.

  • Inflation

and interest rate might come down this year. Banks tend to perform better when there is downward interest rate cycle.

  • The NPL cycle has hit the performance of banks. It might peak in

next 2 quarters

  • r so. From then, there could be recoveries helping to reduce the credit costs.
  • The valuation look very attractive both for public sector banks and private sector

banks.

  • The sector would remain volatile as NPL cycle is yet to fully play out.
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SLIDE 25

Key portfolio thoughts…

  • The Fund plays on the whole financial services spectrum and not on Banks

alone

  • The Fund would have less risk profile than a pure Banking Fund
  • The

Cap exposures are; Large Cap 58%, Midcap 20% and Small Cap accounting for 20%.

  • The weighted average PE for the scheme is at 9.4X FY13.
  • The Fund avoids taking cash calls and will have less turnover.
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SLIDE 26

Returns are on a compounded annual basis for period more than one year & absolute for one-year period based on NAV of Regular Plan (Growth Option) and is as of June 30, 2012. Value of 10,000 invested at inception is as on June 30, 2012.. Relevant benchmarks are highlighted in italics.

Past performance may or may not be sustained in the future

Track Record Absolute Returns (%) Since Inception 30/06/11 ‐ 30/06/12 (%) 30/06/10 ‐ 30/06/11 (%) 30/06/09 ‐ 30/06/10 (%) Returns (%) Rs 10000 invested Sundaram Growth Fund ‐8.8 4.8 29.0 17.4 114,863 BSE 200 Index ‐7.6 3.0 27.2 12.4 58,752 S&P CNX Nifty Index ‐6.5 6.3 23.8 11.1 49,465 Sundaram India Leadership ‐8.6 8.1 31.0 18.5 38,986 S&P CNX Nifty Index ‐6.5 6.3 23.8 16.7 34,334 S&P CNX Nifty Index ‐6.5 6.3 23.8 16.7 34,334 Sundaram Tax Saver ‐2.1 ‐0.1 28.0 18.2 82,279 BSE 200 Index ‐7.6 3.0 27.2 12.0 41,864 S&P CNX Nifty Index ‐6.5 6.3 23.8 11.3 38,385 Sundaram Financial Opportunities ‐11.6 14.0 31.7 14.8 17,514 CNX Banks Index ‐8.0 18.8 29.0 15.2 17,785 S&P CNX Nifty Index ‐6.5 6.3 23.8 4.3 11,863

Other funds managed

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SLIDE 27

Track Record Absolute Returns (%) Since Inception 30/06/11 ‐ 30/06/12 (%) 30/06/10 ‐ 30/06/11 (%) 30/06/09 ‐ 30/06/10 (%) Returns (%) Rs 10000 invested Sundaram Rural India ‐6.0 6.7 35.6 6.0 14,268 BSE 500 Index ‐8.0 2.4 29.1 5.1 13,555 S&P CNX Nifty Index ‐6.5 6.3 23.8 6.2 14,463 Sundaram Entertainment Opportunities ‐26.4 ‐8.0 28.3 1.2 10,507 CNX Media Index ‐17.5 ‐8.9 56.6 ‐6.3 7,701 S&P CNX Nifty Index ‐6.5 6.3 23.8 3.6 11,545 Sundaram PSU Opportunities ‐10.6 4.3 ‐ ‐1.3 9,677 CNX PSE Index ‐14.3 ‐14.0 ‐ ‐13.8 6,922 S&P CNX Nifty Index ‐6.5 6.3 ‐ 0.2 10,056 Sundaram Global Advantage Fund 3.5 21.3 16.1 4.3 10,431 MSCI Emerging Markets Index ‐18.2 24.9 20.6 ‐2.1 9,789 S&P CNX Nifty Index ‐9.2 11.1 73.8 5.2 10,522

Other funds managed

Past performance may or may not be sustained in the future

Returns are on a compounded annual basis for period more than one year & absolute for one-year period based on NAV of Regular Plan (Growth Option) and is as of June 30, 2012. Value of 10,000 invested at inception is as on June 30, 2012.. Relevant benchmarks are highlighted in italics.

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SLIDE 28

Disclaimer & disclosures

Mutual Fund Investments are subject to market risks. read all scheme related documents carefully.

Copy

  • f

the

  • ffer

document / Scheme Information Document, key information memorandum and application form may also be obtained from the offices / investor service centres of Sundaram Asset Management, its distributors and at www.sundarammutual.com Scheme‐Specific Risk Factors: Change in Government policy in general and changes in tax benefits applicable to mutual funds may impact the returns to Investors. Tax‐free status for long‐term capital gains and dividend will depend

  • n

the fund investing at least 65% in equity to qualify in accordance with provisions of the Income‐Tax Act. If and to the extent, the portfolio includes overseas stocks, investors will be exposed to country risk, currency risk, geo‐ political risk, legal restrictions and regulation changes in geography other than India. General Risk Factors: All mutual funds and securities investments are subject to market risks, and there can be no assurance

  • r

guarantee that fund's

  • bjectives

will be achieved. NAV may go up

  • r

down, depending

  • n

the factors and forces affecting the securities market. Main types are market risk, liquidity risk, credit risk and systemic risks. At times, liquidity

  • f

investments may be impaired. There is uncertainty

  • f

dividend distribution and risk of capital loss. Past performance of the Sponsor/Asset Management Company/Fund does not indicate the future performance. Investors in the schemes are not being

  • ffered

any guaranteed

  • r

indicated returns. The name

  • f

the scheme does not in any manner indicate either quality

  • r

future prospects and returns. General Disclaimer: This document is issued by Sundaram Asset Management Company Ltd. an investment manager registered with the Securities and Exchange Board

  • f

India. This document is produced for information purposes

  • nly.

It does not constitute a prospectus

  • r
  • ffer

document

  • r

an

  • ffer or

solicitation to buy any securities or other investment. Information and opinion contained in this document are published for the assistance of the recipient

  • nly; they are not to be relied upon as authoritative or taken as a substitution for exercise of judgement by any recipient. The

content is subject to change without notice and is not intended to provide the sole basis of any evaluation of the instrument discussed or offer to buy. This document is not a solicitation to sell and/or investment advice. This document shall not form the basis of or be relied upon in connection with any contract or commitment whatsoever. The information and opinion contained in this communication have been obtained from sources that Sundaram Asset Management Company Ltd believes to be reliable; no representation or warranty, express or implied, is made that such information is accurate or complete and it should not be relied upon as

  • such. Sundaram Asset Management Company Ltd neither guarantees

its accuracy and/or completeness nor does it guarantee to update the information from time to

  • time. This

communication is for private circulation

  • nly

and for the exclusive and confidential use

  • f

the intended recipient(s)

  • nly. Any

distribution, use

  • r

reproduction

  • f

this communication in its entirety

  • r

any part thereof is unauthorized and strictly prohibited. By accepting this document, you agree to be bound by the above‐mentioned limitations. This communication is for general information

  • nly

without regard to specific

  • bjectives, financial situations and needs of any particular person who may receive Sundaram Asset Management Company Ltd is not soliciting any action

based

  • n

this

  • document. Sundaram Asset

Management Company Ltd., in the discharge

  • f

its functions, may use any

  • f

the data presented in this document for its decision‐making purpose and is not bound to disclose the same. Data and computation used to prepare this document have not been independently verified

  • r

audited. Please read the

  • ffer

document / Scheme Information Document (available

  • nline

at www.sundarammutual.com) carefully before investing and also take professional advice before making an investment decision Statutory: Mutual Fund: Sundaram Mutual Fund is a trust under Indian Trusts Act, 1882. Sponsor: Sundaram Finance Ltd. The liability for the sponsors is limited to Rs 1 lakh. Investment Manager: Sundaram Asset Management Company Ltd. Trustee: Sundaram Trustee Company Ltd.