Sundaram Select Thematic Funds Financial Services Opportunities - PowerPoint PPT Presentation

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, 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 opportunities across the cap curve; Expansion of financials services.  Enabler: up to 35% outside the theme. Investment outside the theme shall be only in large cap stocks preferably within the Nifty For detailed disclosures on risk factors and disclaimers refer slide 28

Latest portfolio Company Weight Equity 94.2 ICICI Bank 12.0 Fixed Income ‐ State Bank of India 10.3 Derivatives ‐ HDFC Bank 10.0 Cash & Equivalents 5.8 Axis Bank 9.2 Avg AUM ( In Rs. 202 Punjab National Bank 7.4 Crore) Bank of Baroda 5.7 Cap-Curve Definition Karur Vysya Bank 3.4 Cap Curve Range (In Crore) Indian Bank 3.3 Large > 24,459 I D F C 2.9 Between 24,459 and Mid Bajaj Auto Finance 2.4 9,841 Small < 9,841 As on June 30, 2012; Source: Fact Sheet

Allocation: Banks & Financial Services Jul-08 Jun-12 • 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

Allocation: Public Sector & Private Sector Jul-08 Jun-12 • 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 As on June 30, 2012; Source: Fact Sheet

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

Wealth creation Change in NAV Annualised Return Period 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 Past Performance may or may not be sustained in future

Value of early investment Value of Rs10,000 invested in June 2008 Fund: Rs 17,514 Benchmark: Rs 17,785 S&PCNX 500: Rs 11,863 Jun 2012 Past Performance may or may not be sustained in future Value in Rs as on June 30, 2012

SIP Performance The fund has beaten the broad market S&P CNX 500 at all periods while investing Rs 1000 ‐ a ‐ month in SIP. Period Investment Fund Benchmark S&P CNX 500 10.6% 13.9% 4.5% Since Inception Returns 48,000 59,349 63,226 52,561 Since Inception Value 36,000 36,369 38,283 34,142 Last 3 years 24,000 22,536 23,836 22,213 Last 2 years 12,000 12,211 12,753 11,826 Last 1 year Past Performance may or may not be sustained in future Value in Rs as on June 30, 2012

Performance Analysis Parameter Fund Parameter Fund Benchmark Alpha 10.53 Average Annual Mean 19.02 8.51 Correlation 0.85 Standard Deviation 34.28 31.20 Tracking Error 18.15 Beta 0.93 1.00 Information Ratio 0.58 Sharpe Ratio 0.32 0.01 Sortino Ratio 0.78 0.02 Treynor Ratio 11.69 0.42 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) Past Performance may or may not be sustained in future Data source : Bloomberg; Computation: In-house ; As on June 30, 2012

Portfolio Manager  A seven ‐ year stint at Canara Bank was followed by a shift to the asset management industry through Canbank Experience Mutual Fund (now Canara Robeco)  Over two decades of tracking the financial markets  Cost Accountant Educational  Post ‐ Graduate in Commerce Background J Venkatesan  To read books and enjoy watching sport Hobbies 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

Fund Facts 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 outside 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 Source: Fact Sheet

Key Arguments

Why Financial Services theme now? • Banks are aiming at maintaining a diversified loan book and loans are not concentrated only 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.

Financials are a proxy to India growth story Comparison of FY12 and RBI projection for • Leading indicators show a positive FY 13 growth momentum FY 12 FY 13 • Core inflation will fall further Real GDP Growth 6.9% 7.3% • Fiscal slippage to be more minimal WPI Inflation 6.9% 6.5% Credit Growth 16.8% 17.0% Deposit Growth 13.0% 16.0% Growth in Money 13.0% 15.0% Supply Source: CLSA Source: CEIC and Nomura Global Economics

Deposit & Non Food Credit Growth inching up Growth in Deposits Non-Food Credit Growth Source: RBI, Bloomberg, Sundaram Asset Management Research

Net Interest Margin of banks to improve • Banks are likely to reduce their deposit rates and lower their lending rates. Implementation of 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 CASA % Source: RBI, Bloomberg, Sundaram Asset Management Research

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 ‐ offs, 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