July 20 Table of Contents Market Outlook What is definition of - PowerPoint PPT Presentation

July 20

Table of Contents Market Outlook • What is definition of Value for HDFC Capital Builder Value Fund? • Why invest in HDFC Capital Builder Value Fund • Investment Approach • Stock Selection • Sector Allocation • Large/Mid/Small-Cap break-up • Portfolio Characteristics • Portfolio Statistics • Top 10 Holdings • Fund Suitability • Scheme Facts • Scheme Performance • 2

Market Outlook 3

Equity Markets Update – Valuation near previous lows India market cap to GDP ratio, calendar year-ends, 2000-21E (%) Source: Kotak Insti Equities, CY20 & CY21 ratio based on current Market cap and GDP estimates of CY20 & CY21 • Markets were down by 23% in March 20 (one of the sharpest monthly falls) led by highest ever monthly FPI outflows • FY21 P/E is less relevant due to significant dislocation of profits expected in several sectors. NIFTY 50 (30-June-20) is trading at FY22 P/E of 16.8 times (Source: Kotak Insti Equities) • Price / Book Value, Marketcap / GDP are better measures in current situation. Prevailing Price / Book Value , Marketcap / GDP are comparable with market bottoms in earlier crises (refer chart above) Refer Disclaimer on Slide 23 4

Low Market Cap to GDP – What does history tell us ? Marketcap to End of Calendar Next 1 year NIFTY Next 3 year NIFTY GDP Year returns returns % 48 2003 11% 111% 55 2004 36% 195% 56 2008 76% 113% 2011 61 28% 79% 2013 65 31% 30% June 2020 ~64 ? ? Source: Kotak Insti Equities, Bloomberg Marketcap to GDP is close to 60% and reflects good value. In the past , similar valuations were followed by • good returns over next 3 years Significant correction in Indian equities led by global selloff in equities and FPI outflows from India. March 20 • saw highest ever monthly FPI outflow of US$ 8.4bn In the past, periods of heavy FPI outflows were followed by periods of sizeable inflows • Historically, sharp corrections in Indian markets triggered by global events were followed by good returns over • medium to long term Past performance may or may not sustain in future. Returns are neither assured nor guaranteed. Refer Disclaimer on Slide 23 5

FPIs selling, will the trend reverse? FPI Flows Rs crs 35.0 FPI outflows % NIFTY FPI flows USD bn 90 days 29.3 Outflows next 360 as % of India Return 30.0 Year period * days total Market next 360 24.5 ending 25.0 Cap days 20.0 2006 11-Aug-06 -4,758 95,307 33% 20.0 -0.2% 16.2 14.2 2008 29-Oct-08 -30,428 1,11,664 85% -1.1% 15.0 2011 13-Dec-11 -12,680 2,00,042 23% -0.2% 8.0 10.0 2013 01-Oct-13 -6,938 1,71,914 38% -0.1% 3.3 2.9 5.0 2015 18-Dec-15 -30,179 73,552 5% -0.3% 2016 29-Feb-16 -26,497 93,963 28% - -0.3% (0.5) 2017 08-Feb-17 -30,414 44,457 23% -0.3% (5.0) (4.3) (4.6) 2018 09-Nov-18 -38,872 68,564 13% -0.3% (10.0) 2020 05-May-20 -50,000 ?? -0.4% CY10CY11CY12CY13CY14CY15CY16CY17CY18CY19CY20 upto Source – Edelweiss; Maximum outflow on a 90 days rolling period May During the current COVID crisis, FPIs have sold more than Rs.50,000 crs as on 5-May-2020 on a 90 day rolling basis. • In the past, periods of major FPI selling, were followed by periods of sizeable FPI inflows • Refer Disclaimer on Slide 23 6

Equity Markets Summary : Opportunity in adversity Significant impact on corporate profits in FY21 likely; however, minimal impact expected on intrinsic values of most • businesses. Indian equity markets in aggregate are trading at attractive valuations; • Marketcap to GDP is ~64% and reflects good value. In the past , such levels were followed by good returns over • next 3 years The current Price to Book Value of the markets is comparable to earlier crisis such as GFC, IT Bubble and Asian • Crisis. Historically, sharp corrections in Indian markets triggered by global events were followed by good returns over medium to • long term. 10 year NIFTY returns are at 5% CAGR currently, this has happened after 15 years. Historically NIFTY returns below 5% • CAGR for a 10 year period have been followed by good returns over next 3, 5 and 10 years Significant increase in Covid-19 cases in India & across the world, sharp rise in oil prices, sharp escalation in border dispute • with China, etc. are key risks in near term Life is a cycle, always in motion, if good times have moved on so will times of trouble Past performance may or may not sustain in future. Returns are neither assured nor guaranteed. Refer Disclaimer on Slide 23 7

HDFC Capital Builder Value Fund 8

What is definition of Value for this Fund ? Investment strategy of this fund would be to focus on : Companies trading below intrinsic value, as measured by potential earnings or asset • values, and/or future cash flow growth Companies in turnaround phase – Good businesses that have gone through a temporary • difficult period and de-rated but are poised for turnaround in profitability Companies trading below their historical average multiples • Provided that the fund shall invest at least 50% of the portfolio in companies which are trading at multiples lower than Median P/E (Price/Earnings) or Median P/B (Price/Book Value) of NIFTY 500 Index. 9

Why Invest in HDFC Capital Builder Value Fund ? Diversified multi-cap strategy with a value bias • Fund is managed true-to-mandate and invests at least 50% of the portfolio in companies • which are trading at multiples lower than Median P/E (Price/Earnings) or Median P/B (Price/Book Value) of NIFTY 500 Index. Emphasis on investing in undervalued stocks with a reasonable margin of safety • Investors with long term horizon can benefit not only from earnings growth but also re- • rating of multiples Actively managed diversified equity portfolio which invests across sectors without a • market cap bias. 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. 10

Investment Approach • Emphasis on undervalued stocks • Preference for companies Stock Selection • (a) trading below intrinsic value • (b) In turnaround phase • (c) trading below historical average multiples • Active Overweight/Underweight vs benchmark Sector Allocation based on top down investment calls No Capitalization Bias • Investments across Market Capitalization range 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. 11

Stock selection At the time of stock selection there is a preference for companies trading below intrinsic • value, companies trading blow historical average multiples and companies in turnaround phase. As of June’20, 79% of the portfolio is in preferred category as follows : • Particulars % of Net Average Average Average EPS Average Description of some companies in Assets TTM TTM Growth ROE our portfolio (Jun’20) P/E P/B (Estimated) (FY20) FY20-22E % CAGR % Companies trading below intrinsic 31% 13.7 2.4 2% 18.3% Largest Utility Co. in India, value (Absolute Value) Largest Tobacco Co. in India, Large Tech Co.in India Companies below historical average 29% 21.8 3.2 16% 14.9% Largest Private sector bank in India, multiples (Relative Value) Large Corporate Focused private sector bank, Largest Auto Co. in India Companies in Turnaround phase 19% 52.1 5.5 43% 12.2% Second Largest Telecom Co. in India, Large Corporate focused Private Bank, Largest Healthcare player in India. Source – Bloomberg, Ratios /Growth estimates as of 6 th July 2020, TTM – Trailing 12 months, P/E-Price/Earnings, P/B –Price/Book Value, EPS – Earnings per share ROE – Return on Equity computed for Fiscal Year ended 31 st March 20. The above is purely as per our internal analysis. The current investment strategy is subject to change depending on the market conditions. Refer disclaimers on Slide 23. Stocks/Sectors referred herein are illustrative and not recommended by HDFC Mutual Fund / AMC. The Fund may or may not have any present or future positions in these stocks/ sectors. The data/statistics are given on the basis of information which is already available in publicly accessible media. The same should not be construed as any research report/research recommendation to buy or sell any security covered under the respective sector/s. HDFC Mutual Fund/AMC is not guaranteeing returns on any investments. 12