GROWTH NEEDS PATIENCE IDFC Emerging Businesses Fund (Small Cap Fund – An open ended equity scheme predominantly investing in small cap stocks) NFO OPENING: 3 rd February 2020 NFO CLOSING: 17 th February 2020 1
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 2
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 3
Reason 1: Small Caps can Suffer from Deep Negative Returns One could lose large sums in just one year Calendar year performance - S&P BSE 250 Small Cap Index 150% 100% 50% 0% -8% -15% -24% -50% -42% -70% -100% 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 Source: Bloomberg, Data for TRI index Past performance may or may not be sustained in future. 4 Data as on December 31, 2019
Reason 2: Investing Based on Past Performance is Dangerous Don’t get lured by attractive past performance…it may not sustain! Calendar year performance - S&P BSE 250 Small Cap Index 150% 132% 100% 79% 57% 56% 50% 37% 16% 2% 2% 0% -8% -15% -24% -50% -42% -70% -100% 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 Source: Bloomberg, Data for TRI index Past performance may or may not be sustained in future. 5 Data as on December 31, 2019
Reason 3: Range of Possible Returns could be very Wide Brace for higher volatility! 3 year rolling return +42% +37% +32% Range of Return JH Large Cap Mid Cap Small Cap -3% -11% -17% 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 6 Past performance may or may not be sustained in future. Data as on December 31, 2019
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 7
Reason 1: Benefit from Niche Opportunities Participate in emerging businesses, unavailable in the large cap space Specialty Diagnostic Chemicals services E.g. Deepak Nitrite E.g. Dr. Lal Pathlabs Illustrative: Unique Segments Textiles Digital in the Small E.g. Vardhaman E.g. Just Dial Textiles Cap Index Media Building E.g. Entertainment materials Network E.g. Kajaria Ceramics 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 8 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.
Reason 2: Small Caps may be the Leaders of Tomorrow Participate in the high-growth opportunities of future blue chips Today 2008 Market Cap Expansion Footwear 1,807 Bata 22,512 Auto Ancillaries 249 9,226 Minda Industries Leisurewear/ 539 26,029 Page Industries Innerwear NBFC 1,562 2,54,784 Bajaj Finance 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 9 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.
Example 1: Minda Industries - Major Supplier to India’s largest PV Manufacturer Annual Return Earnings Per Share 327% 350% CAGR: 73% 14.0 CAGR: -2% 300% 250% 12.0 182% 200% 10.0 150% 155% 8.0 100% CAGR 25% 65% 63% 48% 38% 6.0 32% 50% 9% 4.0 0% -50% -25% 2.0 -10% -30% -50% -60% -100% 0.0 CY06 CY07 CY08 CY09 CY10 CY11 CY12 CY13 CY14 CY15 CY16 CY17 CY18 CY19 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY 19 Annual Return CAGR 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 10 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
Example 2: Page Industries- Beneficiary of shift towards Premiumization Annual Return Earnings Per Share 200% CAGR: 39% 400.0 160% 350.0 150% 127% 300.0 250.0 87% 100% 75% 200.0 57% 43% 51% 50% 150.0 14% 100.0 2% 0% 50.0 CY08 CY09 CY10 CY11 CY12 CY13 CY14 CY15 CY16 CY17 CY18 CY19 -1% -7% 0.0 -28% -50% FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY 19 Annual Return EPS 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 11 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.
Reason 3: Actively managed Small Cap Funds have beaten Benchmark Professional management has consistently delivered alpha in this category 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. 12 Schemes are compared to a common small cap index, i.e. S&P BSE 250 Small Cap Index Data as on December 31, 2019
Reason 4: Small Caps offer the Widest part of the Market Opportunity to select from a broad range of sectors and companies LARGE CAP (Top 100 stocks) S&P BSE 500 MID CAP (101 st - 250 th stocks) SMALL CAP (251 st Stock to 500 th Stocks) + Opportunity Over 500 other companies to choose from Source: SEBI Circular on Categorization and Rationalization of Mutual funds, dated October 6, 2017 and December 4, 2017. 13 The market capitalization is subject to change on half yearly basis.
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 14
Price, Valuation and Volume indicate an attractive Entry Point VOLUME PRICE VALUATION Valuations for Small Small cap index has Small Cap index seen a significant Caps as compared to volumes tend to peak Large Caps now seem correction , while large out as market peaks to be reasonable to cap index has posted and vice versa; attractive positive return! current volumes for Small Caps are closer to 2013 bottom levels 15
Reason 1: Small Caps are currently the most beaten down Segment Significant gap between Large Cap and Small Cap index S&P BSE 100 S&P BSE 150 Mid S&P BSE 250 Absolute Returns Index Cap Index Small Cap Index Since 1st Jan'18 15% -12% -31% 1,145 1,200 1,100 1,000 878 900 800 692 700 600 500 Jul-18 Jul-19 Jan-18 Feb-18 Mar-18 Apr-18 May-18 Jun-18 Aug-18 Sep-18 Oct-18 Nov-18 Dec-18 Jan-19 Feb-19 Mar-19 Apr-19 May-19 Jun-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 Source: Bloomberg, performance for total return index rebased to 1000 16 Data as on December 2019
Small Cap as a % of Large Cap Market Cap near Inflection Current levels are closer to the levels seen in the previous down cycles from where they have mostly rebounded Market Cap of Small Caps as % of Large Caps 24% 25% 21% 20% 15% 14% 13% 10% 10% 8% 5% 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 Source: Bloomberg, Data for S&P BSE 250 small cap versus Nifty 50 17 Past performance may or may not be sustained in future. Data as on December 2019
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