HDFC Growth Opportunities Fund (An open ended equity scheme investing in both large-cap and mid-cap stocks) This product is suitable for investors who are seeking*: • To generate long-term capital appreciation / income • Investment predominantly in Large- Cap and Mid-Cap companies *Investors should consult their financial advisers if in doubt about whether the product is suitable for them . “ A diversified fund with controlled exposure to Large Cap & Mid Cap Stocks Note : The scheme has undergone change in fundamental attribute w.e.f May 23, 2018 and has become an open ended equity scheme investing in both large-cap and mid – cap stocks, prior to the change the fund was positioned as a large cap fund investing predominantly in large cap stocks. Please refer to scheme Information document & addendu m available on www.hdfcfund.com / ISCs for further details. December 2019 1
India suits well for Growth Investing ! 2
India : A Secular Long Term Growth Story Growth : No. CY :2003 CY : 2018 of Times Rs. 19,053,967 6.83 times Nominal GDP* @ Rs. 2,788,991 # Corporate Sales 9.15 times Rs. 927,290 Rs. 8,481,546 # Corporate Profit Rs. 88,036 Rs. 476,252 5.41 times Aggregate M # Rs. 1,275,608 Rs. 14,468,646 11.34 times Cap Amount in Rs. crores Source: *CMIE; The data before 2004-05 is based on splicing GDP. # Capitaline, Morgan Stanley Research, Bloomberg @ - March 04-March 19 Refer disclaimers at the end of the presentation 3
Factors supporting the Growth in India • Excellent demographics • Rich in natural resources • Large availability of skilled, young, English speaking and competitive manpower • Low penetration of consumer goods and improving affordability • Large unmet needs of infrastructure • Strong reforms momentum “The investor of today does not profit from yesterday’s growth.” - Warren Buffett HDFC Mutual Fund/AMC is not guaranteeing returns on investments made in this scheme. The current investment strategy is subject to change depending on the market conditions. Refer disclaimers at the end of the presentation 4
Indian Economy – Growth moderates, other parameters stable Table 1 • Over the past few years, most macro economic parameters are improving Improving macros FY15 FY17 FY19 FY20E FY21E or are stable; however growth has slowed down in FY20 (Table 1) Real GDP at market price (% YoY) 7.4 8.2 6.8 4.7 5.5 4.1 3.5 Centre's fiscal deficit (% GDP) 3.4 3.8 3.7 • Both consumption (58% of GDP) and investments (29% of GDP) slowed 1.3 0.7 Current Account Deficit (CAD) (% GDP) 2.1 1.5 1.6 down significantly in H1 FY20 (Chart 1) Balance of Payment (% of GDP) 3.0 0.9 -0.1 1.2 0.9 Consumer Price Inflation (CPI) (Average) 6 4.5 3.4 4.2 4.5 • Foreign Exchange Reserves (USD bn) 341 370 412 454^ NA Auto sector, especially Passenger vehicles (PV), despite low penetration, Source: Kotak Institutional Equities, E-Estimates, ^ as of 13 th Dec 19. na – not available slowed down sharply in 2019. Sharp de-growth of production in auto sector (~3-4% of GDP) was a key contributor to slowdown (slide 6-7) • Slowdown was also observed across other segments like cement, air Chart 1 travel, consumer durables, etc. (charts 2 to 4) • Slides 6-7 explain the key reasons for slowdown, what was sustaining consumption till now and growth outlook for FY21 Chart 3 Chart 4 Chart 2 Sources: CMIE, Kotak Institutional Equities 5
Slowdown demystified A leading IT Company (INR Real • FY04 FY19 CAGR (%) Core issue is degrowth in white collar private sector wages in real terms lakhs per annum) growth Typical Entry level (approx.) 2.0 4.0 4.7 -2.1 ‒ White collar wages, in real terms, have de-grown by 27% in 15 years Average salary 11.5 17.7 2.9 -3.9 (as measured by entry level IT salary) Average inflation 6.8 ‒ Average wage bill (salary per person) of a leading IT company has grown at CAGR of 2.9% only over FY04-FY19 ‒ While real wages were weak for 10-15 years, consumption sustained in this period, probably due to falling savings and debt led consumption • Sharp increase in bankruptcy cases over last few years impacted wages / jobs for many # ‒ Over 2,500 companies were admitted under IBC till Sep’ 19, ~600 were closed by liquidation and ~1,500 are still under process ‒ Just the 22 companies / groups in IBC had ~60,000 employees • Weak private investment. Large number of companies in capital intensive sectors like steel, power and Infrastructure are in IBC. This has resulted in supply of ready assets below replacement cost; hence new asset creation was discouraged • Slowdown, in our opinion, was also exaggerated due to sharper decline in wholesale volumes in auto sector due to high inventory with dealers in FY19 and transition to BS VI norms from April 2020, that necessitated an inventory correction of old stock • Challenges faced by NBFCs and erosion of wealth due to sharp correction in midcap/small caps also had an adverse impact Sources: # IBBI.gov.in, Capitaline, Kotak Institutional Equities, Morgan Stanley 6
Why do we think Economic growth has bottomed ? Chart 1 • Link between Auto sector and GDP slowdown – 2 sides of the same coin ‒ Auto sector accounts for ~3-4% of GDP; thus volume de-growth of ~15%-20% shaves off 0.5% - 0.8% of GDP growth ‒ With inventory correction over, even if auto volumes are flat next year, GDP growth should be higher by 0.5-0.8% in FY21, on this count alone • Lower corporate tax cuts for new manufacturing units ‒ In a path breaking decision, government reduced the corporate tax rate to 15% for all new manufacturing units that commence production before Mar-23 Chart 2 ‒ In our view, given the general time to set up new unit is 2 - 4 years and deadline of Mar-23 to avail tax benefit, private capex should improve in FY21, especially by MNCs • Measures taken by Government & RBI ‒ Reduction in corporate tax rates & policy rates (135 bps in 2019); ‒ Multiple steps taken to resolve liquidity issues in NBFCs and Real estate; ‒ Focus on improving ease of doing business; India’s rank improved to 63 from 77 in 2018 & 100 in 2017 Table 1 • Post verdict on Essar steel case, most large assets in Power, steel, infrastructure etc. are likely to be resolved under IBC in FY20. This should improve capex in FY21 as 2 years ago Currently Saving Home Loan 40,00,000 38,00,000^ ‒ New owners of IBC assets are likely to incur incremental capex to optimise efficiency Tenor (In years) 20 20 etc. E.g.- Arcelor Mittal indicated capex of INR 80 bn in Essar Interest rate 9.2% 8.3% ‒ For growth, now new units will have to be planned as no existing units are available EMI for home loan (36,376) (32,498) 10.7% • With decline in interest rates (Table 1) and real estate prices (Chart 2), EMIs of home loans ^assuming 5% decline in real estate prices have reduced, thus improving affordability Sources: CMIE, ICICI Securities, PIB 7
Road to USD 5 trillion (tn) economy gets a Rs 100 trillion (USD 1.4tn) Infra spending boost ! On 31 st Dec, 2019, Government announced a massive thrust on Infra with doubling • 23 19.5 19.0 Total Infra spend (Rs tn) of planned project pipeline (National Infrastructure Pipeline - NIP) to Rs 102 trillion 18 13.6 13.8 12.8 (tn) over next 6 years vs Rs 56 tn spent in last 6 years ! 11.1 13 9.2 10.2 10.0 8.5 7.0 6.3 8 5.3 • The list of projects is part of a report prepared by a task force under the 3 chairmanship of the Economic Affairs Secretary 13 14 15 16 17 18E 19E 20E 21E 22E 23E 24E 25E Source: National Infrastructure pipeline, GOI • Planned spending will be frontloaded between FY20-22E with focus on roads, railways and urban infra while renewables will gain traction in later phases. • Spending to be funded by Center 39%, States 39%, & Private sector 22% • Out of Rs 102tn , projects worth Rs 43tn are already under implementation, Rs 20tn are under development & another Rs 32tn are at conceptual stage • Focus on Roads (19%), Urban & Rural infrastructure / housing (20%), railways (13%) Source: Antique Stock Broking & renewable energy (9%) • Revival in real estate & manufacturing to drive GFCF CAGR of 15% between FY19- 24E compared to 10% between FY11-19 (Antique estimate) • Infra spending boost along with Corporate tax rate cut (slide 9) announced earlier will aid competitive edge to Indian manufacturing Source: Antique Stock Broking 8
Recommend
More recommend
