Presentation- HDFC Business Cycle Fund NFO.pdf
yadav9mike
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43 slides
Jan 07, 2024
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About This Presentation
Hdfc
Slide Content
1
01
Refer disclaimers on page 48
HDFC Business Cycle Fund
Choose a
better route.
Aim to stay ahead with
HDFC Business Cycle Fund aims to invest in businesses likely
on the cusp / midst of a favourable business cycle.
01
Refer disclaimers on page 48
HDFC Business Cycle Fund
Choose a
better route.
Aim to stay ahead with
HDFC Business Cycle Fund aims to invest in businesses likely
on the cusp / midst of a favourable business cycle.
1
Nature of Business Cycles
02
Refer disclaimers on page 48
Business Activity
Time
Expansion
Slump
Peak
Contraction
(Rising growth)
(Phase of weak / no growth)
(Stable growth
at high levels)
(Declining /
slowing growth)
Nature of Business Cycles
02
Refer disclaimers on page 48
Business Activity
Time
Expansion
Slump
Peak
Contraction
(Rising growth)
(Phase of weak / no growth)
(Stable growth
at high levels)
(Declining /
slowing growth)
1
Nature of Business Cycles
Key parameters Expansion Peak Contraction Slump
Volume growth Rising Stable growth Declining / slow growth Phase of weak / no growth
Pricing power Improving High Reducing Weak
Competitive
intensity
Low, businesses look
to increase market share
Low
Focus shifts on
protecting market share
High
Cost consciousness
(CC)
Usually low as
profitability is high
Low
As sales and margins
come under pressure,
CC builds in
High
Rising High
Declining, with new
capacities coming live
Low ROCE, often raising
questions on past capex
Capex
Capex plans are
considered a
nd
planned
High capex taking into
account past growth
/sometimes leads to
excesses
Fresh capex plans
cancelled, existing
ones delayed
Capex plans are realigned
Business
sentiment
Return on Capital
employed (ROCE)
Improving High Weakening Pessimism
03
Refer disclaimers on page 48
Nature of Business Cycles
Key parameters Expansion Peak Contraction Slump
Volume growth Rising Stable growth Declining / slow growth Phase of weak / no growth
Pricing power Improving High Reducing Weak
Competitive
intensity
Low, businesses look
to increase market share
Low
Focus shifts on
protecting market share
High
Cost consciousness
(CC)
Usually low as
profitability is high
Low
As sales and margins
come under pressure,
CC builds in
High
Rising High
Declining, with new
capacities coming live
Low ROCE, often raising
questions on past capex
Capex
Capex plans are
considered a
nd
planned
High capex taking into
account past growth
/sometimes leads to
excesses
Fresh capex plans
cancelled, existing
ones delayed
Capex plans are realigned
Business
sentiment
Return on Capital
employed (ROCE)
Improving High Weakening Pessimism
03
Refer disclaimers on page 48
1
Various cycles at play
Economic
cycle
Inflation
and Interest
rate cycle
Business
cycles
Credit
and Asset
quality
cycle
Corporate
profits
cycle
Investor
sentiment
cycle
Valuations
and market
cycle
Expansion / contraction of
the economic growth
Increase / Decrease in interest
rates by the central bank and
reflected in debt markets
Expansion / contraction in Sales,
Margins, optimism / pessimism
in business expectations
reflecting in capex plans
Increase / decrease in net profits
on account of movement in sales,
margins, and leverage
Expensive / reasonable /
attractive market valuations
Greed / fear reflecting in
retail and institutional flows
Higher / lower credit creation and asset quality (NPAs)
04
Refer disclaimers on page 48
Various cycles at play
Economic
cycle
Inflation
and Interest
rate cycle
Business
cycles
Credit
and Asset
quality
cycle
Corporate
profits
cycle
Investor
sentiment
cycle
Valuations
and market
cycle
Expansion / contraction of
the economic growth
Increase / Decrease in interest
rates by the central bank and
reflected in debt markets
Expansion / contraction in Sales,
Margins, optimism / pessimism
in business expectations
reflecting in capex plans
Increase / decrease in net profits
on account of movement in sales,
margins, and leverage
Expensive / reasonable /
attractive market valuations
Greed / fear reflecting in
retail and institutional flows
Higher / lower credit creation and asset quality (NPAs)
04
Refer disclaimers on page 48
1
One Sector, Multiple Business Cycles
One sector could harbor multiple businesses in different stages of business cycle
Auto &
Auto
Ancillaries
2 wheelers
4 wheelers /
cars
Three
wheelers
Tractors and
commercial
vehicles
Electric
Vehicles
(across other
cycles)
Pharma /
healthcare
Formulations
CDMO /CRO*
API*
Hospitals
Diagnostics
Medical
devices
Auto: 5 distinct businesses Pharma: 6 distinct businesses
*CDMO: Contract Development and Manufacturing
Organization; CRO: Contract Research Organisation;
API: Active Pharmaceutical Ingredient
05
One Sector, Multiple Business Cycles
One sector could harbor multiple businesses in different stages of business cycle
Auto &
Auto
Ancillaries
2 wheelers
4 wheelers /
cars
Three
wheelers
Tractors and
commercial
vehicles
Electric
Vehicles
(across other
cycles)
Pharma /
healthcare
Formulations
CDMO /CRO*
API*
Hospitals
Diagnostics
Medical
devices
Auto: 5 distinct businesses Pharma: 6 distinct businesses
*CDMO: Contract Development and Manufacturing
Organization; CRO: Contract Research Organisation;
API: Active Pharmaceutical Ingredient
05
1
Why does business cycle investing make sense?
Estimating positioning of various business cycles and their trajectory can be done with higher confidence vs the general economic cycle
Higher confidence on forecasts
When businesses are in upcycle, investors get dual benefit of earnings growth and improvement in valuation multiples
(#case studies ahead)
Correlation with valuations
Invest in businesses likely on the cusp/midst of favorable business upcycle, avoid businesses about to enter/in a downcycle
Investment Strategy
Based on lead indicators, domain expertise and recurring patterns in business history - Investing opportunities can be identified
ahead of time
Ahead of the curve
Investments across companies and themes are not static in nature and can be rotated based on stages of business cycles.
Agility
06
Why does business cycle investing make sense?
Estimating positioning of various business cycles and their trajectory can be done with higher confidence vs the general economic cycle
Higher confidence on forecasts
When businesses are in upcycle, investors get dual benefit of earnings growth and improvement in valuation multiples
(#case studies ahead)
Correlation with valuations
Invest in businesses likely on the cusp/midst of favorable business upcycle, avoid businesses about to enter/in a downcycle
Investment Strategy
Based on lead indicators, domain expertise and recurring patterns in business history - Investing opportunities can be identified
ahead of time
Ahead of the curve
Investments across companies and themes are not static in nature and can be rotated based on stages of business cycles.
Agility
06
1
07
Refer disclaimers on page 48
HDFC Business Cycle Fund
Aim to stay ahead
An open ended equity scheme following business cycle based investing theme
Presenting
07
Refer disclaimers on page 48
HDFC Business Cycle Fund
Aim to stay ahead
An open ended equity scheme following business cycle based investing theme
Presenting
Presenting
1
Portfolio Strategy
08
Blend of top down and bottom up approach (page 9-10)
Core of portfolio (>80%) would be companies likely on the cusp / midst of favorable
business cycle, while avoiding companies about to enter/in a business downcycle
Investment across large, mid and small caps
Benchmark: Nifty 500 TRI
Optimally diversified across number of stocks
Non-core (<20%) portfolio would consist of
1) growth stories relatively agnostic to the business cycle
2) stocks relatively better positioned within their sector
3) tactical opportunities with favorable risk-reward
1
Portfolio Strategy
08
Blend of top down and bottom up approach (page 9-10)
Core of portfolio (>80%) would be companies likely on the cusp / midst of favorable
business cycle, while avoiding companies about to enter/in a business downcycle
Investment across large, mid and small caps
Benchmark: Nifty 500 TRI
Optimally diversified across number of stocks
Non-core (<20%) portfolio would consist of
1) growth stories relatively agnostic to the business cycle
2) stocks relatively better positioned within their sector
3) tactical opportunities with favorable risk-reward
An open ended equity scheme following business cycle based investing theme
Presenting
1
Top down approach – Factors considered
09
Note: The above list is illustrative of the factors that the fund manager shall consider in assessing the stages of business cycles
Macro indicators
Domestic GDP growth
Inflation & Interest rates
Policy environment
Business confidence
Geopolitical factors
Global growth (Exports potential)
Business specific indicators
Outlook on growth
Competition in marketplace & Pricing power
Bargaining power of buyers and suppliers
Threat of substitutes
Consumer sentiment
Capacity utilization and capex plans
Presenting
1
Top down approach – Factors considered
09
Note: The above list is illustrative of the factors that the fund manager shall consider in assessing the stages of business cycles
Macro indicators
Domestic GDP growth
Inflation & Interest rates
Policy environment
Business confidence
Geopolitical factors
Global growth (Exports potential)
Business specific indicators
Outlook on growth
Competition in marketplace & Pricing power
Bargaining power of buyers and suppliers
Threat of substitutes
Consumer sentiment
Capacity utilization and capex plans
An open ended equity scheme following business cycle based investing theme
Presenting
1
Bottom up approach for stock selection
10
Process-driven fundamental analysis and research
Deep understanding of stocks within diverse business cycles (#case studies)
Collaborate with independent domain experts
Aim to benefit from improvement/acceleration in earnings as the business enters a phase
of upcycle (expansion-peak)
Identify stocks most attractively valued relative to their quality of management, business
model & financial metrics
Focus on understanding how above factors will change over time
Presenting
1
Bottom up approach for stock selection
10
Process-driven fundamental analysis and research
Deep understanding of stocks within diverse business cycles (#case studies)
Collaborate with independent domain experts
Aim to benefit from improvement/acceleration in earnings as the business enters a phase
of upcycle (expansion-peak)
Identify stocks most attractively valued relative to their quality of management, business
model & financial metrics
Focus on understanding how above factors will change over time
1
Case Study # 1 - Indian IT Services
11
Source: Nasscom, Bloomberg
Indian IT exports have grown at a robust 17% CAGR in the past
twenty years:
FY02-08: Offshoring wave post Y2K led to a stellar 32% CAGR
FY10-15: healthy 15% growth, led by continuous offshoring
and in-roads made by Indian players as strategic partners
for global enterprises
FY15-18: 8% CAGR; slowdown in growth rates due to
adoption of cloud/digital and focus on automation
FY21 onwards: Covid, investments in digital skills drove
acceleration in growth
Sector valuation has moved in line with revenue growth
0%
10%
20%
30%
40%
50%
60%
FY99
FY00
FY01
FY02
FY03
FY04
FY05
FY06
FY07
FY08
FY09
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
FY20
FY21
FY22
Indian IT exports growth (US$ % YoY)
Offshoring wave
GFC
Post-GFC pickup
Digital
disruption
Covid-led
acceleration
Covid
Dot com
boom
Dot com
crash
8.0
12.0
16.0
20.0
24.0
28.0
32.0
0%
5%
10%
15%
20%
25%
30%
FY08
FY09
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
FY20
FY21
FY22
Indian IT revenue vs valuation
Indian IT US$ revenues (% YoY) Nifty IT 1-yr fwd PE (x)
Case Study # 1 - Indian IT Services
11
Source: Nasscom, Bloomberg
Indian IT exports have grown at a robust 17% CAGR in the past
twenty years:
FY02-08: Offshoring wave post Y2K led to a stellar 32% CAGR
FY10-15: healthy 15% growth, led by continuous offshoring
and in-roads made by Indian players as strategic partners
for global enterprises
FY15-18: 8% CAGR; slowdown in growth rates due to
adoption of cloud/digital and focus on automation
FY21 onwards: Covid, investments in digital skills drove
acceleration in growth
Sector valuation has moved in line with revenue growth
0%
10%
20%
30%
40%
50%
60%
FY99
FY00
FY01
FY02
FY03
FY04
FY05
FY06
FY07
FY08
FY09
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
FY20
FY21
FY22
Indian IT exports growth (US$ % YoY)
Offshoring wave
GFC
Post-GFC pickup
Digital
disruption
Covid-led
acceleration
Covid
Dot com
boom
Dot com
crash
8.0
12.0
16.0
20.0
24.0
28.0
32.0
0%
5%
10%
15%
20%
25%
30%
FY08
FY09
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
FY20
FY21
FY22
Indian IT revenue vs valuation
Indian IT US$ revenues (% YoY) Nifty IT 1-yr fwd PE (x)
An open ended equity scheme following business cycle based investing theme
Presenting
1
Case Study # 2 - Banks
12
Steady reduction in NPAs since 2018
Loan growth trending up
Valuations moving largely in line with fundamentals
Interest rates changes over the years
Source: RBI, Niftyindices.com, Company data, Kotak Institutional Equities
0
4
8
12
16
20
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
Gross NPAs (%) Net NPAs (%)
0
0.5
1
1.5
2
2.5
3
3.5
4
4.5
5
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
Bank Nifty P/B
-
7
14
21
28
35
Aug-01
Aug-02
Aug-03
Aug-04
Aug-05
Aug-06
Aug-07
Aug-08
Aug-09
Aug-10
Aug-11
Aug-12
Aug-13
Aug-14
Aug-15
Aug-16
Aug-17
Aug-18
Aug-19
Aug-20
Aug-21
Aug-22
Deposit growth Advances growth
4.0
5.8
7.6
9.4
11.2
13.0
Aug-01
Aug-02
Aug-03
Aug-04
Aug-05
Aug-06
Aug-07
Aug-08
Aug-09
Aug-10
Aug-11
Aug-12
Aug-13
Aug-14
Aug-15
Aug-16
Aug-17
Aug-18
Aug-19
Aug-20
Aug-21
Aug-22
SBI home loan rate SBI 1-year TD rate
Presenting
1
Case Study # 2 - Banks
12
Steady reduction in NPAs since 2018
Loan growth trending up
Valuations moving largely in line with fundamentals
Interest rates changes over the years
Source: RBI, Niftyindices.com, Company data, Kotak Institutional Equities
0
4
8
12
16
20
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
Gross NPAs (%) Net NPAs (%)
0
0.5
1
1.5
2
2.5
3
3.5
4
4.5
5
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
Bank Nifty P/B
-
7
14
21
28
35
Aug-01
Aug-02
Aug-03
Aug-04
Aug-05
Aug-06
Aug-07
Aug-08
Aug-09
Aug-10
Aug-11
Aug-12
Aug-13
Aug-14
Aug-15
Aug-16
Aug-17
Aug-18
Aug-19
Aug-20
Aug-21
Aug-22
Deposit growth Advances growth
4.0
5.8
7.6
9.4
11.2
13.0
Aug-01
Aug-02
Aug-03
Aug-04
Aug-05
Aug-06
Aug-07
Aug-08
Aug-09
Aug-10
Aug-11
Aug-12
Aug-13
Aug-14
Aug-15
Aug-16
Aug-17
Aug-18
Aug-19
Aug-20
Aug-21
Aug-22
SBI home loan rate SBI 1-year TD rate
An open ended equity scheme following business cycle based investing theme
Presenting
1
Case Study #3 Auto – multiple business cycles (1/2)
13
2 Wheelers – multiples have seen correction due to rising EV threat
2W sales – EV penetration picking up 4W sales – EV penetration slowly picking up
4 Wheelers – market leader saw expansion in multiples in a phase
of large market share gains
Source: Edelweiss Research, Internal calculations
-
5
10
15
20
25
0
200
400
600
800
1000
PER (Hero MotoCorp) Domestic 2W Volumes (in ₹000)
0
10
20
30
40
50
60
30
35
40
45
50
55
Mar-04
Mar-05
Mar-06
Mar-07
Mar-08
Mar-09
Mar-10
Mar-11
Mar-12
Mar-13
Mar-14
Mar-15
Mar-16
Mar-17
Mar-18
Mar-19
Mar-20
Mar-21
Mar-22
PER (Maruti Suzuki) Market Share (LHS)
0.4%
0.9%
1.9%
4.7%
Jan-21
Apr-21
Jul-21
Oct-21
Jan-22
Apr-22
Jul-22
0%
1%
2%
3%
4%
5%
All India 2W
EV penetration has been faster in 2 wheelers
0.2%
1.2%
Jan-21
Apr-21
Jul-21
Oct-21
Jan-22
Apr-22
Jul-22
0.0%
0.2%
0.4%
0.6%
0.8%
1.0%
1.2%
1.4%
All India 4W
Mar-04
Mar-06
Mar-08
Mar-10
Mar-12
Mar-14
Mar-16
Mar-18
Mar-20
Mar-22
Presenting
1
Case Study #3 Auto – multiple business cycles (1/2)
13
2 Wheelers – multiples have seen correction due to rising EV threat
2W sales – EV penetration picking up 4W sales – EV penetration slowly picking up
4 Wheelers – market leader saw expansion in multiples in a phase
of large market share gains
Source: Edelweiss Research, Internal calculations
-
5
10
15
20
25
0
200
400
600
800
1000
PER (Hero MotoCorp) Domestic 2W Volumes (in ₹000)
0
10
20
30
40
50
60
30
35
40
45
50
55
Mar-04
Mar-05
Mar-06
Mar-07
Mar-08
Mar-09
Mar-10
Mar-11
Mar-12
Mar-13
Mar-14
Mar-15
Mar-16
Mar-17
Mar-18
Mar-19
Mar-20
Mar-21
Mar-22
PER (Maruti Suzuki) Market Share (LHS)
0.4%
0.9%
1.9%
4.7%
Jan-21
Apr-21
Jul-21
Oct-21
Jan-22
Apr-22
Jul-22
0%
1%
2%
3%
4%
5%
All India 2W
EV penetration has been faster in 2 wheelers
0.2%
1.2%
Jan-21
Apr-21
Jul-21
Oct-21
Jan-22
Apr-22
Jul-22
0.0%
0.2%
0.4%
0.6%
0.8%
1.0%
1.2%
1.4%
All India 4W
Mar-04
Mar-06
Mar-08
Mar-10
Mar-12
Mar-14
Mar-16
Mar-18
Mar-20
Mar-22
An open ended equity scheme following business cycle based investing theme
Presenting
1
Auto – multiple business cycles (2/2)
14
Source: Edelweiss Research, Internal calculations
Commercial Vehicles – a large player got re-rated post
sharp market share gains over a span of few years
Tractor - Valuations moved in line with industry growth trends
-
10.00
20.00
30.00
40.00
50.00
60.00
70.00
20
22
24
26
28
30
32
34
36
EV/EBITDA 1yr Fwd (AL) AL M&HCV Mkt Share (LHS)
Total tractor volumes Escorts 12-month forward PE
Tractor - Valuations moved in line with industry growth trends
-15.0
-10.0
-5.0
0.0
5.0
10.0
15.0
20.0
25.0
30.0
-40.0%
-30.0%
-20.0%
-10.0%
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
Apr-13
Oct-13
Apr-14
Oct-14
Apr-15
Oct-15
Apr-16
Oct-16
Apr-17
Oct-17
Apr-18
Oct-18
Apr-19
Oct-19
Apr-20
Oct-20
Apr-21
Oct-21
Apr-22
Jun-03
Jun-05
Jun-07
Jun-09
Jun-11
Jun-13
Jun-15
Jun-17
Jun-19
Jun-21
Presenting
1
Auto – multiple business cycles (2/2)
14
Source: Edelweiss Research, Internal calculations
Commercial Vehicles – a large player got re-rated post
sharp market share gains over a span of few years
Tractor - Valuations moved in line with industry growth trends
-
10.00
20.00
30.00
40.00
50.00
60.00
70.00
20
22
24
26
28
30
32
34
36
EV/EBITDA 1yr Fwd (AL) AL M&HCV Mkt Share (LHS)
Total tractor volumes Escorts 12-month forward PE
Tractor - Valuations moved in line with industry growth trends
-15.0
-10.0
-5.0
0.0
5.0
10.0
15.0
20.0
25.0
30.0
-40.0%
-30.0%
-20.0%
-10.0%
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
Apr-13
Oct-13
Apr-14
Oct-14
Apr-15
Oct-15
Apr-16
Oct-16
Apr-17
Oct-17
Apr-18
Oct-18
Apr-19
Oct-19
Apr-20
Oct-20
Apr-21
Oct-21
Apr-22
Jun-03
Jun-05
Jun-07
Jun-09
Jun-11
Jun-13
Jun-15
Jun-17
Jun-19
Jun-21
An open ended equity scheme following business cycle based investing theme
Presenting
1
Case Study # 4 – Pharmaceuticals – global pricing is key
15
Source: Goldman Sachs Global Investment research, company data; *Companies considered for above analysis include Sun, Cipla, Dr. Reddy’s, Zydus Lifesciences, Aurobindo, Lupin
US is the key earnings driver for the sector Generics pricing in the US is the key variable to track
…which ultimately drives valuations Sector margin/ROCE highly correlated to generics pricing…
40% 40% 41% 41% 37% 37% 37% 36% 34%
FY14
FY15
FY16
FY17
FY18
FY19
FY20
FY21
FY22
Sales mix %
USIndiaAPIOthers
-30%
-20%
-10%
0%
10%
20%
30%
40%
Aug-07
Apr-08
Dec-08
Aug-09
Apr-10
Dec-10
Aug-11
Apr-12
Dec-12
Aug-13
Apr-14
Dec-14
Aug-15
Apr-16
Dec-16
Aug-17
Apr-18
Dec-18
Aug-19
Apr-20
Dec-20
Aug-21
Apr-22
US generic pricing (yoy)
0%
5%
10%
15%
20%
15%
17%
19%
21%
23%
25%
27%
29%
31%
FY14
FY15
FY16
FY17
FY18
FY19
FY20
FY21
FY22
EBITDA margin% and ROCE
EBITDA margin % ROCE % (pre-tax) RHS
10.0
15.0
20.0
25.0
30.0
35.0
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
Mar-20
Sep-20
Mar-21
Sep-21
Mar-22
Sep-22
Nifty Pharma P/E
Presenting
1
Case Study # 4 – Pharmaceuticals – global pricing is key
15
Source: Goldman Sachs Global Investment research, company data; *Companies considered for above analysis include Sun, Cipla, Dr. Reddy’s, Zydus Lifesciences, Aurobindo, Lupin
US is the key earnings driver for the sector Generics pricing in the US is the key variable to track
…which ultimately drives valuations Sector margin/ROCE highly correlated to generics pricing…
40% 40% 41% 41% 37% 37% 37% 36% 34%
FY14
FY15
FY16
FY17
FY18
FY19
FY20
FY21
FY22
Sales mix %
USIndiaAPIOthers
-30%
-20%
-10%
0%
10%
20%
30%
40%
Aug-07
Apr-08
Dec-08
Aug-09
Apr-10
Dec-10
Aug-11
Apr-12
Dec-12
Aug-13
Apr-14
Dec-14
Aug-15
Apr-16
Dec-16
Aug-17
Apr-18
Dec-18
Aug-19
Apr-20
Dec-20
Aug-21
Apr-22
US generic pricing (yoy)
0%
5%
10%
15%
20%
15%
17%
19%
21%
23%
25%
27%
29%
31%
FY14
FY15
FY16
FY17
FY18
FY19
FY20
FY21
FY22
EBITDA margin% and ROCE
EBITDA margin % ROCE % (pre-tax) RHS
10.0
15.0
20.0
25.0
30.0
35.0
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
Mar-20
Sep-20
Mar-21
Sep-21
Mar-22
Sep-22
Nifty Pharma P/E
An open ended equity scheme following business cycle based investing theme
1
# 5 – E-commerce – very high trend growth
16
Source: Company. MAU = Monthly Average Users
Source: Redseer, Nykaa DRHP *Note- ATU - Annual transacting users
Source: Redseer, Nykaa DRHP
Source: Company. BPC: Beauty and Personal Care
Online Shoppers (transacts on online retail platforms) ATUs (mn)
Market leader in Online BPC, retail ATUs (mn)Market leader in Online Food Delivery MAUs (mn)
220
321
381
458
543
660
722
800
343
422
494
637
743 825
825
990
0
200
400
600
800
1000
1200
FY16
FY17
FY18
FY19
FY20
FY21
FY22
FY25E
Smart Phone Users (mn) Access to Internet (including shared devices) Users (mn)
50
75
90
110
135
165
190
375
0
50
100
150
200
250
300
350
400
FY16
FY17
FY18
FY19
FY20
FY21
FY22
FY25E
13.8
29.3
41.5
32.1
53
0
10
20
30
40
50
60
FY18
FY19
FY20
FY21
FY22
3.5
5.3
5.6
8.4
0
2
4
6
8
10
FY19
FY20
FY21
FY22
1
# 5 – E-commerce – very high trend growth
16
Source: Company. MAU = Monthly Average Users
Source: Redseer, Nykaa DRHP *Note- ATU - Annual transacting users
Source: Redseer, Nykaa DRHP
Source: Company. BPC: Beauty and Personal Care
Online Shoppers (transacts on online retail platforms) ATUs (mn)
Market leader in Online BPC, retail ATUs (mn)Market leader in Online Food Delivery MAUs (mn)
220
321
381
458
543
660
722
800
343
422
494
637
743 825
825
990
0
200
400
600
800
1000
1200
FY16
FY17
FY18
FY19
FY20
FY21
FY22
FY25E
Smart Phone Users (mn) Access to Internet (including shared devices) Users (mn)
50
75
90
110
135
165
190
375
0
50
100
150
200
250
300
350
400
FY16
FY17
FY18
FY19
FY20
FY21
FY22
FY25E
13.8
29.3
41.5
32.1
53
0
10
20
30
40
50
60
FY18
FY19
FY20
FY21
FY22
3.5
5.3
5.6
8.4
0
2
4
6
8
10
FY19
FY20
FY21
FY22
1
# 6 - Capex cycles: 2000s vs 2010s. 2020s?
17
India’s capex cycle in a meaningful way started only towards later part of 1990s.
2003-2010: Over this period, even though the base was low, India reported strong growth in capex spending at 21% CAGR—this was led by 13%
CAGR in Government capex spending and a very strong 42% CAGR in corporate capex spending (includes private companies and PSUs). This period
was aided by strong capex spending in core sectors including power, metals & mining, cement, etc.
2010-2022: Capex spending in India over 2010-2022 has seen large divergence—Private/PSU capex growth were muted at only 4% CAGR while large
spending by Central/State government (13% CAGR) saved the day and added to overall capex growth at 10% CAGR.
Government spending on roads, railways, metro projects, water, airports have all contributed to higher government spending over last decade.
However, private sector capex was weak due to highly leveraged balance-sheets and weak earnings for the core sector companies - this is
changing of late.
Source: RBI, Capitaline, Budget documents, NHAI
-
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
4,500
2003
2005
2007
2009
2011
2013
2015
2017
2019
2021
(Rs bn)
PSU capex (BSE-500) (Rs bn) Private capex (BSE-500) (Rs bn)
-
2,000
4,000
6,000
8,000
10,000
12,000
14,000
2003
2005
2007
2009
2011
2013
2015
2017
2019
2021
(Rs bn)
Central Government capex (Rs bn)State Government capex (Rs bn)
-
200
400
600
800
1,000
1,200
1,400
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022RE
(Rs bn)
Roads capex (Rs bn)
Government capex CAGR 13%
Private capex CAGR 41%
Private + PSU capex CAGR 42%
Private capex CAGR 41%
Private + PSU capex CAGR 42%
Government capex CAGR 13%
Road capex CAGR 4%
Road capex CAGR 27%
# 6 - Capex cycles: 2000s vs 2010s. 2020s?
17
India’s capex cycle in a meaningful way started only towards later part of 1990s.
2003-2010: Over this period, even though the base was low, India reported strong growth in capex spending at 21% CAGR—this was led by 13%
CAGR in Government capex spending and a very strong 42% CAGR in corporate capex spending (includes private companies and PSUs). This period
was aided by strong capex spending in core sectors including power, metals & mining, cement, etc.
2010-2022: Capex spending in India over 2010-2022 has seen large divergence—Private/PSU capex growth were muted at only 4% CAGR while large
spending by Central/State government (13% CAGR) saved the day and added to overall capex growth at 10% CAGR.
Government spending on roads, railways, metro projects, water, airports have all contributed to higher government spending over last decade.
However, private sector capex was weak due to highly leveraged balance-sheets and weak earnings for the core sector companies - this is
changing of late.
Source: RBI, Capitaline, Budget documents, NHAI
-
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
4,500
2003
2005
2007
2009
2011
2013
2015
2017
2019
2021
(Rs bn)
PSU capex (BSE-500) (Rs bn) Private capex (BSE-500) (Rs bn)
-
2,000
4,000
6,000
8,000
10,000
12,000
14,000
2003
2005
2007
2009
2011
2013
2015
2017
2019
2021
(Rs bn)
Central Government capex (Rs bn)State Government capex (Rs bn)
-
200
400
600
800
1,000
1,200
1,400
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022RE
(Rs bn)
Roads capex (Rs bn)
Government capex CAGR 13%
Private capex CAGR 41%
Private + PSU capex CAGR 42%
Private capex CAGR 41%
Private + PSU capex CAGR 42%
Government capex CAGR 13%
Road capex CAGR 4%
Road capex CAGR 27%
22
1
18
Other Portfolio Attributes
1
18
Other Portfolio Attributes
1
19
Risk Management Metrics
Adequate diversification
Aim to be reasonably diversified across sectors / sub
sectors and across market capitalization
Active approach likely to result in relatively
lower portfolio overlap with the benchmark
Could also result in exclusion of select sectors
present in the benchmark but approaching /
undergoing a business downcycle.
19
Risk Management Metrics
Adequate diversification
Aim to be reasonably diversified across sectors / sub
sectors and across market capitalization
Active approach likely to result in relatively
lower portfolio overlap with the benchmark
Could also result in exclusion of select sectors
present in the benchmark but approaching /
undergoing a business downcycle.
An open ended equity scheme following business cycle based investing theme
Presenting
1
Risk reward positioning
20
Disclaimer: In view of the individual circumstances and risk tolerance, each investor is advised to seek appropriate professional advice. For complete portfolio allocation details, refer to the Scheme
Information Document. Risk is defined as per increasing level of equity exposure. Returns are not assured. ^ Unlike Fixed Deposit, investments in mutual fund are subject to market risks.$ The Fund invests
in equity, debt and gold ETF schemes and thus indirectly takes exposure to various asset classes. Investors in the Scheme shall bear the recurring expenses of the Scheme in addition to the expenses of
other schemes in which this Fund of Funds scheme makes investment (subject to regulatory limits). ** Total Hedged and Unhedged Equity allocation will be minimum 65%
Expected Risk
Expected Return
Conservative Investor Risk Tolerance Aggressive Investor
Asset
Allocation
Fund of Funds
HDFC Asset
Allocator Fund
of Funds$
Conservative
Hybrid Fund
HDFC Hybrid
Debt Fund
Balanced
Advantage
Fund
HDFC Balanced
Advantage Fund
Diversified
equity funds
HDFC
Flexi Cap
Fund
Thematic –
Business Cycle
HDFC Business
Cycle Fund
(Multiple
businesses)
Other
Thematic
Funds
HDFC Housing
Opportunities
Fund and HDFC
Infrastructure
Fund
(Singular
theme)
Sector Funds
HDFC Banking
& Financial
Services Fund
Aims at returns
higher than
traditional fixed
income instruments
such as fixed
deposit ^
Aims to protect
purchasing
power, suitable
for systematic
withdrawal
Aims at wealth
creation using
diversified
equities
Aims at wealth
creation by
investing in
specific themes
Aims at wealth
creation by
investing in
specific sectors
Aims at wealth
creation with
dynamic asset
allocation
Category
Name
Scheme
Name
Attribute
Equity Range :
80% - 100%
Equity Range :
80% - 100%
Equity
Allocation
Equity Range :
80% - 100%
Aims at wealth
creation by
investing in
business cycles
likely to do well
Equity Range :
10% - 25%
Exposure to Equity
Oriented Schemes
Range : 40% - 80%
Equity Range :
65% - 100%**
Equity Range :
80% - 100%
Presenting
1
Risk reward positioning
20
Disclaimer: In view of the individual circumstances and risk tolerance, each investor is advised to seek appropriate professional advice. For complete portfolio allocation details, refer to the Scheme
Information Document. Risk is defined as per increasing level of equity exposure. Returns are not assured. ^ Unlike Fixed Deposit, investments in mutual fund are subject to market risks.$ The Fund invests
in equity, debt and gold ETF schemes and thus indirectly takes exposure to various asset classes. Investors in the Scheme shall bear the recurring expenses of the Scheme in addition to the expenses of
other schemes in which this Fund of Funds scheme makes investment (subject to regulatory limits). ** Total Hedged and Unhedged Equity allocation will be minimum 65%
Expected Risk
Expected Return
Conservative Investor Risk Tolerance Aggressive Investor
Asset
Allocation
Fund of Funds
HDFC Asset
Allocator Fund
of Funds$
Conservative
Hybrid Fund
HDFC Hybrid
Debt Fund
Balanced
Advantage
Fund
HDFC Balanced
Advantage Fund
Diversified
equity funds
HDFC
Flexi Cap
Fund
Thematic –
Business Cycle
HDFC Business
Cycle Fund
(Multiple
businesses)
Other
Thematic
Funds
HDFC Housing
Opportunities
Fund and HDFC
Infrastructure
Fund
(Singular
theme)
Sector Funds
HDFC Banking
& Financial
Services Fund
Aims at returns
higher than
traditional fixed
income instruments
such as fixed
deposit ^
Aims to protect
purchasing
power, suitable
for systematic
withdrawal
Aims at wealth
creation using
diversified
equities
Aims at wealth
creation by
investing in
specific themes
Aims at wealth
creation by
investing in
specific sectors
Aims at wealth
creation with
dynamic asset
allocation
Category
Name
Scheme
Name
Attribute
Equity Range :
80% - 100%
Equity Range :
80% - 100%
Equity
Allocation
Equity Range :
80% - 100%
Aims at wealth
creation by
investing in
business cycles
likely to do well
Equity Range :
10% - 25%
Exposure to Equity
Oriented Schemes
Range : 40% - 80%
Equity Range :
65% - 100%**
Equity Range :
80% - 100%
An open ended equity scheme following business cycle based investing theme
Presenting
1
Product suitability
21
This product is suitable for investors who are seeking
To generate long-term capital appreciation/ income via investment predominantly in equity &
equity related instruments related to the business cycle theme
To take advantage of having higher exposure to businesses and companies at the “cusp of
acceleration / midst” of high earnings growth as they are about to enter/ are in a high growth
phase
Investment horizon 3 or more years
Presenting
1
Product suitability
21
This product is suitable for investors who are seeking
To generate long-term capital appreciation/ income via investment predominantly in equity &
equity related instruments related to the business cycle theme
To take advantage of having higher exposure to businesses and companies at the “cusp of
acceleration / midst” of high earnings growth as they are about to enter/ are in a high growth
phase
Investment horizon 3 or more years
1
22
Large and experienced team with a rigorous investment process
Rahul Baijal, Senior Fund Manager - Equities
Experienced team: 28 Investment professionals with average experience of 18 years
Experienced risk management team
Wide and deep stock coverage ~ 400 stocks in the core list covering ~85% of India market cap
HDFC Business Cycle Fund aims to leverage strengths in its research
and fund management team to manage funds based on outlook on
business cycles
22
Large and experienced team with a rigorous investment process
Rahul Baijal, Senior Fund Manager - Equities
Experienced team: 28 Investment professionals with average experience of 18 years
Experienced risk management team
Wide and deep stock coverage ~ 400 stocks in the core list covering ~85% of India market cap
HDFC Business Cycle Fund aims to leverage strengths in its research
and fund management team to manage funds based on outlook on
business cycles
1
Know your Fund Manager
23
Rahul has an experience spanning over 20 years in Equity Research and Fund Management.
He joined HDFC Asset Management Company Limited in July’22. Prior to joining HDFC Asset Management
Company Limited, Rahul spent 6 years with Sundaram Mutual Fund as Senior Equity Fund Manager, where he
was managing schemes in the large cap, large & midcap, focused, hybrid equity and thematic categories. He
has won various accolades from different research agencies for his performance in the above categories. He
has also worked with Bharti AXA Life Insurance, TVF Capital (First Voyager Advisors), HSBC Securities and Credit
Suisse Securities in the past.
Mr. Rahul earned his PGDM (MBA) from Indian Institute of Management, Calcutta in 1999. He has also
completed his B.E. Electronics & Communication from Delhi College of Engineering, University of Delhi.
Mr. Rahul Baijal
Senior Fund Manager - Equities
Know your Fund Manager
23
Rahul has an experience spanning over 20 years in Equity Research and Fund Management.
He joined HDFC Asset Management Company Limited in July’22. Prior to joining HDFC Asset Management
Company Limited, Rahul spent 6 years with Sundaram Mutual Fund as Senior Equity Fund Manager, where he
was managing schemes in the large cap, large & midcap, focused, hybrid equity and thematic categories. He
has won various accolades from different research agencies for his performance in the above categories. He
has also worked with Bharti AXA Life Insurance, TVF Capital (First Voyager Advisors), HSBC Securities and Credit
Suisse Securities in the past.
Mr. Rahul earned his PGDM (MBA) from Indian Institute of Management, Calcutta in 1999. He has also
completed his B.E. Electronics & Communication from Delhi College of Engineering, University of Delhi.
Mr. Rahul Baijal
Senior Fund Manager - Equities
1
Fund Facts
24
Investment Objective To provide long-term capital appreciation by investing predominantly in equity and equity related securities with a focus
on riding business cycles through dynamic allocation between various sectors and stocks at different stages of business cycles
Fund Manager Mr. Rahul Baijal
Benchmark Index NIFTY 500 TRI (Total Returns Index)
Exit Load
•In respect of each purchase/switch-in of units, an Exit load of 1% is payable if units are redeemed/switched-out
within 1 year from the date of allotment.
•No Exit Load is payable if units are redeemed / switched-out after 1 year from the date of allotment.
•No Entry / Exit Load shall be levied on bonus units and Units allotted on Re-investment of Income Distribution cum
Capital Withdrawal.
•In respect of Systematic Transactions such as SIP, GSIP, Flex SIP, STP, Flex STP, Swing STP, Exit Load, if any,
prevailing on the date of r
egistration / enrolment shall be levied.
Plans Regular and Direct
Options
Regular and Direct Plans offer the following sub-options:
a) Growth Option
b) Income Distribution cum Capital Withdrawal (IDCW) Option.
IDCW option offers following Sub-Options / facilities:
a) Payout of IDCW Option / facility and
b) Re-investment of IDCW Option / facility
Minimum Application
Amount
During NFO Period:
Purchase: Rs. 100/- and any amount thereafter
During continuous offer period (after scheme re-opens for repurchase and sale):
Purchase and additional purchase: Rs. 100/- and any amount thereafter
Note: Allotment of units will be done after deduction of applicable stamp duty and transaction charges, if any.
Fund Facts
24
Investment Objective To provide long-term capital appreciation by investing predominantly in equity and equity related securities with a focus
on riding business cycles through dynamic allocation between various sectors and stocks at different stages of business cycles
Fund Manager Mr. Rahul Baijal
Benchmark Index NIFTY 500 TRI (Total Returns Index)
Exit Load
•In respect of each purchase/switch-in of units, an Exit load of 1% is payable if units are redeemed/switched-out
within 1 year from the date of allotment.
•No Exit Load is payable if units are redeemed / switched-out after 1 year from the date of allotment.
•No Entry / Exit Load shall be levied on bonus units and Units allotted on Re-investment of Income Distribution cum
Capital Withdrawal.
•In respect of Systematic Transactions such as SIP, GSIP, Flex SIP, STP, Flex STP, Swing STP, Exit Load, if any,
prevailing on the date of r
egistration / enrolment shall be levied.
Plans Regular and Direct
Options
Regular and Direct Plans offer the following sub-options:
a) Growth Option
b) Income Distribution cum Capital Withdrawal (IDCW) Option.
IDCW option offers following Sub-Options / facilities:
a) Payout of IDCW Option / facility and
b) Re-investment of IDCW Option / facility
Minimum Application
Amount
During NFO Period:
Purchase: Rs. 100/- and any amount thereafter
During continuous offer period (after scheme re-opens for repurchase and sale):
Purchase and additional purchase: Rs. 100/- and any amount thereafter
Note: Allotment of units will be done after deduction of applicable stamp duty and transaction charges, if any.
1
Asset Allocation
25
The scheme will invest predominantly in equity and equity related securities with focus on
riding business cycles through dynamic allocation between sectors and stocks at different
stages of business cycles
Under normal circumstances, the asset allocation (% of Net Assets) of the Scheme's portfolio
will be as follows:
Types of Instruments
Minimum Allocation (%
of Net Assets)
Maximum Allocation
(% of Net Assets)
Risk Profile
Equity and Equity related instruments of
Business cycle based theme companies
80 100 High to Very High
Equity and Equity related instruments of
companies other than above
0 20 High to Very High
Units of REITs and InvITs 0 10 Medium to High
Debt securities, money market instruments and
Fixed Income Derivatives
0 20 Low
to Medium
Units of Mutual Fund 0 20 Low to High
Asset Allocation
25
The scheme will invest predominantly in equity and equity related securities with focus on
riding business cycles through dynamic allocation between sectors and stocks at different
stages of business cycles
Under normal circumstances, the asset allocation (% of Net Assets) of the Scheme's portfolio
will be as follows:
Types of Instruments
Minimum Allocation (%
of Net Assets)
Maximum Allocation
(% of Net Assets)
Risk Profile
Equity and Equity related instruments of
Business cycle based theme companies
80 100 High to Very High
Equity and Equity related instruments of
companies other than above
0 20 High to Very High
Units of REITs and InvITs 0 10 Medium to High
Debt securities, money market instruments and
Fixed Income Derivatives
0 20 Low
to Medium
Units of Mutual Fund 0 20 Low to High
1
Nature of cycles…
26
Inevitable
and regular
Self-
correcting
Oscillating
/ Follows
patterns
Nature of cycles…
26
Inevitable
and regular
Self-
correcting
Oscillating
/ Follows
patterns
Nature of cycles…
22
1
Some quotes
27
History doesn’t repeat itself, but it does rhyme
An Investor has to learn to recognize cycles, assess them, look for the instructions they imply,
and do what they tell him to do
– Mark Twain
In the business world, the rearview mirror is always clearer than the windshield
– Warren Buffett
– Howard Marks
If we apply some insight regarding cycles, we can increase our bets when the odds are in our
favor and take money off the table when the odds are against us
– Howard Marks
What you really want to do in investments is figure out what’s important and knowable.
If it's unimportant or unknowable, you forget about it
– Warren Buffett
Superior investors – like everyone else- don’t know exactly what the future holds, they do
have an above-average understanding of future tendencies
– Howard Marks
22
1
Some quotes
27
History doesn’t repeat itself, but it does rhyme
An Investor has to learn to recognize cycles, assess them, look for the instructions they imply,
and do what they tell him to do
– Mark Twain
In the business world, the rearview mirror is always clearer than the windshield
– Warren Buffett
– Howard Marks
If we apply some insight regarding cycles, we can increase our bets when the odds are in our
favor and take money off the table when the odds are against us
– Howard Marks
What you really want to do in investments is figure out what’s important and knowable.
If it's unimportant or unknowable, you forget about it
– Warren Buffett
Superior investors – like everyone else- don’t know exactly what the future holds, they do
have an above-average understanding of future tendencies
– Howard Marks
22
1
28
APPENDIX 1
Some more business cycle
case studies
1
28
APPENDIX 1
Some more business cycle
case studies
Nature of cycles…
22
1
A- Global LNG Business Cycle
29
6
3
11
21
25
5
(1)
(7)
27
(3)
(8)
35
-
5
10
15
20
25
30
35
40
(20)
(15)
(10)
(5)
0
5
10
15
20
25
30
2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022E
Cyclical nature of Global LNG follows underly supplying cycle
Supply Growth - Demand Growth (MTPA) LNG Price ($/mmbtu, RHS)
Cycle of oversupply leading to lower prices
Cycle of Undersupply leading to Higher prices
Global LNG prices tends to move in
cycle largely driven by underlying
supply growth relative to demand
2012-16 was period of excess of
supply over demand by almost
~70MT
Prices started to move only after
absorption of earlier supplies
Due to muted supply growth until
2025-26 prices have moved high,
further exacerbated by the
Ukraine-Russia war.
Source: Bernstein Research, Morgan Stanley Research
22
1
A- Global LNG Business Cycle
29
6
3
11
21
25
5
(1)
(7)
27
(3)
(8)
35
-
5
10
15
20
25
30
35
40
(20)
(15)
(10)
(5)
0
5
10
15
20
25
30
2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022E
Cyclical nature of Global LNG follows underly supplying cycle
Supply Growth - Demand Growth (MTPA) LNG Price ($/mmbtu, RHS)
Cycle of oversupply leading to lower prices
Cycle of Undersupply leading to Higher prices
Global LNG prices tends to move in
cycle largely driven by underlying
supply growth relative to demand
2012-16 was period of excess of
supply over demand by almost
~70MT
Prices started to move only after
absorption of earlier supplies
Due to muted supply growth until
2025-26 prices have moved high,
further exacerbated by the
Ukraine-Russia war.
Source: Bernstein Research, Morgan Stanley Research
Nature of cycles…
22
1
B- Defence —increased capital spending and indigenization efforts are business tailwinds
30
Defence capital spending seen sharp increase over last few years led by geo-political concerns and Government of India's
focus on India’s defence capability building
In 2021, 58% of capital acquisition funds were for domestic procurement which will increase to 68% in 2023 and see sharp
increase over next few years led by “Atmanirbhara Bharat”
Government has released negative list of imports which can aid domestic defence ordering by INR 5 trillion over next 5-7
years. Increased focus on R&D and Transfer of Technology to domestic companies
-
200
400
600
800
1,000
1,200
1,400
1,600
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023BE
(Rs bn)
India:defence capital outlay (Rs bn)
-
100
200
300
400
500
600
700
800
900
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
(Rs bn)
Defence purchases by Indian forces
Foreign OEM purchase (Rs bn)Indigenous purchase (Rs bn)
Source: Budget documents, Ministry of Defence
Indigenous purchase CAGR 3%
CAGR 11%
CAGR 5%
Indigenous purchase CAGR 14%
22
1
B- Defence —increased capital spending and indigenization efforts are business tailwinds
30
Defence capital spending seen sharp increase over last few years led by geo-political concerns and Government of India's
focus on India’s defence capability building
In 2021, 58% of capital acquisition funds were for domestic procurement which will increase to 68% in 2023 and see sharp
increase over next few years led by “Atmanirbhara Bharat”
Government has released negative list of imports which can aid domestic defence ordering by INR 5 trillion over next 5-7
years. Increased focus on R&D and Transfer of Technology to domestic companies
-
200
400
600
800
1,000
1,200
1,400
1,600
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023BE
(Rs bn)
India:defence capital outlay (Rs bn)
-
100
200
300
400
500
600
700
800
900
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
(Rs bn)
Defence purchases by Indian forces
Foreign OEM purchase (Rs bn)Indigenous purchase (Rs bn)
Source: Budget documents, Ministry of Defence
Indigenous purchase CAGR 3%
CAGR 11%
CAGR 5%
Indigenous purchase CAGR 14%
Nature of cycles…
22
1
C - Metals - business cycles have large implications on sector outlook and earnings
31
Global economic/business cycle has large bearing on commodities including metals led by the changes in underlying
demand-supply fundamentals
STEEL down-cycles. Global Financial Crisis (GFC) of 2008-09, China real estate slowdown of 2015-2016 and US-China trade war in
2018-2019 led to sharp fall in steel prices and earnings of global and domestic steel companies; domestic steel prices trade on
global parity. Such periods saw large under-performance of steel stocks.
STEEL up-cycles. China’s large infrastructure and real-estate investment in 2003-2008, large stimulus by major economies in
2010-2011, China’s stimulus and steel capacity cuts in 2016-2017 led to strong recovery in steel prices and earnings of steel companies
and consequently out-performance of steel stocks. Similarly, post Covid-19, combination of large stimulus by all major economies,
high energy costs and supply chain issues led to sharp rally in steel prices and significant outperformance of steel stocks.
Source: Bloomberg, Steelmint
100
300
500
700
900
1,100
1,300
10,000
20,000
30,000
40,000
50,000
60,000
70,000
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
(US$/ton)(INR/ton)
India HRC steel prices (Rs/ton) [LHS] China HRC steel prices (US$/ton) [RHS]
China rea
estate
slowdown
China
stimulus
steel ,
capacity
cuts
US:China
trade war
Demand,
slowdown
Stimulus
& Supply
chain
issues
Large
stimulus by
major
economies
GFC
Large
infrastructure
investment in
China, Real-estate
boom
China
Property
slowdown
22
1
C - Metals - business cycles have large implications on sector outlook and earnings
31
Global economic/business cycle has large bearing on commodities including metals led by the changes in underlying
demand-supply fundamentals
STEEL down-cycles. Global Financial Crisis (GFC) of 2008-09, China real estate slowdown of 2015-2016 and US-China trade war in
2018-2019 led to sharp fall in steel prices and earnings of global and domestic steel companies; domestic steel prices trade on
global parity. Such periods saw large under-performance of steel stocks.
STEEL up-cycles. China’s large infrastructure and real-estate investment in 2003-2008, large stimulus by major economies in
2010-2011, China’s stimulus and steel capacity cuts in 2016-2017 led to strong recovery in steel prices and earnings of steel companies
and consequently out-performance of steel stocks. Similarly, post Covid-19, combination of large stimulus by all major economies,
high energy costs and supply chain issues led to sharp rally in steel prices and significant outperformance of steel stocks.
Source: Bloomberg, Steelmint
100
300
500
700
900
1,100
1,300
10,000
20,000
30,000
40,000
50,000
60,000
70,000
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
(US$/ton)(INR/ton)
India HRC steel prices (Rs/ton) [LHS] China HRC steel prices (US$/ton) [RHS]
China rea
estate
slowdown
China
stimulus
steel ,
capacity
cuts
US:China
trade war
Demand,
slowdown
Stimulus
& Supply
chain
issues
Large
stimulus by
major
economies
GFC
Large
infrastructure
investment in
China, Real-estate
boom
China
Property
slowdown
22
1
APPENDIX 2
Economy and Equity
Market outlook
32
1
APPENDIX 2
Economy and Equity
Market outlook
32
Nature of cycles…
22
1
Indian economy has grown steadily despite several challenges
33
6 6 7 6
9 10
6 7
0
2
4
6
8
10
12
14
16
18
1980-89 1990-99 2000-09 2010-21
Average Annual Real GDP Growth % Average Annual Inflation %
15
16
13 13
Source : IMF Data, Estimates are IMF estimates;
Operation Blue Star
Rajiv Gandhi Government
Birth of IT Industry
Rise of BJP in Indian Politics
Advent of TV, Maruti Car
1980-89
Global Oil Crisis - Gulf War
BoP Crisis, Reforms commence
Asian Crisis, Era of coalitions
1st BJP govt., Kargil Conflict
Growth of IT, Satellite TV, Mobiles
1990-99
Violence in Gujarat post Godhra
9/11 , Dotcom Bubble bust
Growth of Indian Generics Cos.
10 year Congress rule
Lehmann Crisis, QE
2000-09
Coal, NIMO etc. scandals
QE Tapering, PIGS, Greece
High FD & CAD, high inflation
BJP Government elected twice
Demonetisation, GST, Make in India
Covid-19
Russia-Ukraine war
2010-21E
22
1
Indian economy has grown steadily despite several challenges
33
6 6 7 6
9 10
6 7
0
2
4
6
8
10
12
14
16
18
1980-89 1990-99 2000-09 2010-21
Average Annual Real GDP Growth % Average Annual Inflation %
15
16
13 13
Source : IMF Data, Estimates are IMF estimates;
Operation Blue Star
Rajiv Gandhi Government
Birth of IT Industry
Rise of BJP in Indian Politics
Advent of TV, Maruti Car
1980-89
Global Oil Crisis - Gulf War
BoP Crisis, Reforms commence
Asian Crisis, Era of coalitions
1st BJP govt., Kargil Conflict
Growth of IT, Satellite TV, Mobiles
1990-99
Violence in Gujarat post Godhra
9/11 , Dotcom Bubble bust
Growth of Indian Generics Cos.
10 year Congress rule
Lehmann Crisis, QE
2000-09
Coal, NIMO etc. scandals
QE Tapering, PIGS, Greece
High FD & CAD, high inflation
BJP Government elected twice
Demonetisation, GST, Make in India
Covid-19
Russia-Ukraine war
2010-21E
Nature of cycles…
22
1
India Economy & Markets: Discussion points
34
1 2 3 4 5
6 7 8 9 10
Make in India to
benefit Indian
manufacturing
segment
Shift from
unorganized
to organized
players
China
+1 story is
unfolding
Housing -
Affordability is
at a high
Corporate
balance sheet
deleveraging
Banks –
improving
NPAs and rising
capital
adequacy
Continued
infrastructure
investments -led
by the
Government
Elevated
commodity
prices – supply
disruption,
demand
recovery
Rising
inflation &
interest rates
Geopolitical
risks
22
1
India Economy & Markets: Discussion points
34
1 2 3 4 5
6 7 8 9 10
Make in India to
benefit Indian
manufacturing
segment
Shift from
unorganized
to organized
players
China
+1 story is
unfolding
Housing -
Affordability is
at a high
Corporate
balance sheet
deleveraging
Banks –
improving
NPAs and rising
capital
adequacy
Continued
infrastructure
investments -led
by the
Government
Elevated
commodity
prices – supply
disruption,
demand
recovery
Rising
inflation &
interest rates
Geopolitical
risks
Nature of cycles…
22
1
Make in India / China +1 story unfolding
35
15%
2%
0%
5%
10%
15%
20%
1961
1964
1967
1970
1973
1976
1979
1982
1985
1988
1991
1994
1997
2000
2003
2006
2009
2012
2015
2018
2021
% share in Global merchandise exports
China India
222
250
265
272
360
431
447
531
150 300 450 600
China
Thailand
Malaysia
Indonesia
Philippines
India
Vietnam
Cambodia
Manufacturing
wages (USD / month)
60.0%
55.0%
50.0%
70.0%
65.0%
75.0%
2040
2035
2030
2025
2020
2015
2010
2005
2000
1995
1990
1985
1980
1975
1970
1965
1960
1955
1950
China India
Working age population
as % of Total Population
India lost to China in scaling up manufacturing in last two decades
Disruption due to Covid-19 has triggered an urgency to diversify global supply chain and many global
MNCs are implementing China+1 strategy; further, wages and compliance costs in China have also risen
This trend has come at an opportune time as India’s competitiveness has improved due to lower
wages, PLI schemes, tax incentives, etc. along with other favourable government policies
India is a likely beneficiary of this shift in manufacturing due to the following reasons
A large domestic market & improving ease of doing business
Skilled human resources at competitive costs
Tariff and non-tariff measures to aggressively support manufacturing in India
Production linked incentive scheme (PLI) improves competitiveness
Focus on self reliance in defence, chemicals, pharmaceuticals, etc.
Structural advantage - India’s share of working age population will overtake China by 2030
Source: World Bank
Is India Ready ?
Raising duties under Phased Manufacturing Programme
Rationalization of Labour Laws and land reforms
Reducing tax rates for manufacturing units set up
before Mar-23
Opening up defence sector and banning imports of
select items
Revision of MSME definition to incentivise scaling of
operations
PLI Schemes for select industries to promote import
substitutions and increase exports
Source: Morgan Stanley; Publicly available information
Steps taken to boost domestic manufacturing
Source: UN Population database
22
1
Make in India / China +1 story unfolding
35
15%
2%
0%
5%
10%
15%
20%
1961
1964
1967
1970
1973
1976
1979
1982
1985
1988
1991
1994
1997
2000
2003
2006
2009
2012
2015
2018
2021
% share in Global merchandise exports
China India
222
250
265
272
360
431
447
531
150 300 450 600
China
Thailand
Malaysia
Indonesia
Philippines
India
Vietnam
Cambodia
Manufacturing
wages (USD / month)
60.0%
55.0%
50.0%
70.0%
65.0%
75.0%
2040
2035
2030
2025
2020
2015
2010
2005
2000
1995
1990
1985
1980
1975
1970
1965
1960
1955
1950
China India
Working age population
as % of Total Population
India lost to China in scaling up manufacturing in last two decades
Disruption due to Covid-19 has triggered an urgency to diversify global supply chain and many global
MNCs are implementing China+1 strategy; further, wages and compliance costs in China have also risen
This trend has come at an opportune time as India’s competitiveness has improved due to lower
wages, PLI schemes, tax incentives, etc. along with other favourable government policies
India is a likely beneficiary of this shift in manufacturing due to the following reasons
A large domestic market & improving ease of doing business
Skilled human resources at competitive costs
Tariff and non-tariff measures to aggressively support manufacturing in India
Production linked incentive scheme (PLI) improves competitiveness
Focus on self reliance in defence, chemicals, pharmaceuticals, etc.
Structural advantage - India’s share of working age population will overtake China by 2030
Source: World Bank
Is India Ready ?
Raising duties under Phased Manufacturing Programme
Rationalization of Labour Laws and land reforms
Reducing tax rates for manufacturing units set up
before Mar-23
Opening up defence sector and banning imports of
select items
Revision of MSME definition to incentivise scaling of
operations
PLI Schemes for select industries to promote import
substitutions and increase exports
Source: Morgan Stanley; Publicly available information
Steps taken to boost domestic manufacturing
Source: UN Population database
1
Unorganised share in India is large
36
Plywood
Air Coolers
Pipes
Laminates
Plastic Tanks
Footwear Retail
Coconut Oil
Paints
Food and Grocery
Jewellery
Apparel and Accessories
Home & Living
Food Service Market
Greenply Company Presentation 1Q23
Symphony Annual report FY21
Astral Annual report FY22
Greenlam Analyst Presentation 2022
Astral Annual report FY22
FY20, Metro DRHP, Crisil Research
FY21, Marico Information update
FY20, Indigo Paints DRHP
FY20, Mrs. Bector Food DRHP, Technopak report
FY20, Mrs. Bector Food DRHP, Technopak report
FY20, Mrs. Bector Food DRHP, Technopak report
FY20, Mrs. Bector Food DRHP, Technopak report
FY20, Mrs. Bector Food DRHP, Technopak report
75%
70%
35%
38%
70%
69%
30-35%
33%
96%
68%
68%
85%
59%
Sector Unorganised share Source
Unorganised share in India is large
36
Plywood
Air Coolers
Pipes
Laminates
Plastic Tanks
Footwear Retail
Coconut Oil
Paints
Food and Grocery
Jewellery
Apparel and Accessories
Home & Living
Food Service Market
Greenply Company Presentation 1Q23
Symphony Annual report FY21
Astral Annual report FY22
Greenlam Analyst Presentation 2022
Astral Annual report FY22
FY20, Metro DRHP, Crisil Research
FY21, Marico Information update
FY20, Indigo Paints DRHP
FY20, Mrs. Bector Food DRHP, Technopak report
FY20, Mrs. Bector Food DRHP, Technopak report
FY20, Mrs. Bector Food DRHP, Technopak report
FY20, Mrs. Bector Food DRHP, Technopak report
FY20, Mrs. Bector Food DRHP, Technopak report
75%
70%
35%
38%
70%
69%
30-35%
33%
96%
68%
68%
85%
59%
Sector Unorganised share Source
Nature of cycles…
22
1
India – Banking system relatively better placed
37
Source : RBI, Investec
1.1%
1.0%
1.%3
1.7%
2.1%
2.4%
4.4%
5.3%
6.0%
3.7%
2.8%
2.4%
2.2%
0.0%
2.5%
5.0%
7.5%
10.0%
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
NNPA%
14.5
14.2
14.2
13.9
13.0
13.0
13.3
13.6
13.8
14.3
14.7
16.3
16.8
8.0
9.0
10.0
11.0
12.0
13.0
14.0
15.0
16.0
17.0
18.0
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
System Capital Adequacy
0%
5%
10%
15%
20%
25%
30%
35%
40%
Jun-10
Jun-11
Jun-12
Jun-13
Jun-14
Jun-15
Jun-16
Jun-17
Jun-18
Jun-19
Jun-20
Jun-21
Jun-22
Credit Growth %
Banking system - in good health with adequate capitalization and end of corporate NPA cycle.
Credit growth is weak due to good corporate profitability and deleveraging. Higher inflation, low debt / equity ratio
of corporates and broad based revival in corporate profitability should lead to improved credit growth going forward.
Interest rates - Difference between India and US yields remains reasonable and thus, eases pressure on capital flows
into India
22
1
India – Banking system relatively better placed
37
Source : RBI, Investec
1.1%
1.0%
1.%3
1.7%
2.1%
2.4%
4.4%
5.3%
6.0%
3.7%
2.8%
2.4%
2.2%
0.0%
2.5%
5.0%
7.5%
10.0%
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
NNPA%
14.5
14.2
14.2
13.9
13.0
13.0
13.3
13.6
13.8
14.3
14.7
16.3
16.8
8.0
9.0
10.0
11.0
12.0
13.0
14.0
15.0
16.0
17.0
18.0
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
System Capital Adequacy
0%
5%
10%
15%
20%
25%
30%
35%
40%
Jun-10
Jun-11
Jun-12
Jun-13
Jun-14
Jun-15
Jun-16
Jun-17
Jun-18
Jun-19
Jun-20
Jun-21
Jun-22
Credit Growth %
Banking system - in good health with adequate capitalization and end of corporate NPA cycle.
Credit growth is weak due to good corporate profitability and deleveraging. Higher inflation, low debt / equity ratio
of corporates and broad based revival in corporate profitability should lead to improved credit growth going forward.
Interest rates - Difference between India and US yields remains reasonable and thus, eases pressure on capital flows
into India
2237
Nature of cycles…
22
1
Housing – Better prospects
38
Over the past two decades, house affordability has improved
and is close to decadal best
With India Inc. moving towards a hybrid work model
(Office + WFH), demand for home improvement sector is
likely to get a boost
Improving affordability, rising employment, and rise in
wealth due to the rise in stock markets, etc. is positive
for real estate demand
Real estate volumes have picked up and the trend is likely to
sustain in the near term
Increased transparency on account of RERA has renewed
buyer confidence
Consolidation and formalisation of sector an emerging trend
36
31
2827
34
38
5658
44
37
49
53
5050
48
44
38
3433
30
2728
31
33
35
0
10
20
30
40
50
60
FY01
FY02
FY03
FY04
FY05
FY06
FY07
FY08
FY09
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
FY20
FY21
FY22
FY23 @7.5%
FY23 @8.5%
FY23 @9.5%
(%)
Affordability ratio (Home loan payment / Income ratio)
-100%
-50%
0%
50%
100%
150%
200%
1Q09
3Q09
1Q10
3Q10
1Q11
3Q11
1Q12
3Q12
1Q13
3Q13
1Q14
3Q14
1Q15
3Q15
1Q16
3Q16
1Q17
3Q17
1Q18
3Q18
1Q19
3Q19
1Q20
3Q20
1Q21
3Q21
1Q22
New Launches, YoY% New Sales, YoY%
Housing is an important part of Gross capital formation
and its revival should support faster growth
Nature of cycles…
22
1
Housing – Better prospects
38
Over the past two decades, house affordability has improved
and is close to decadal best
With India Inc. moving towards a hybrid work model
(Office + WFH), demand for home improvement sector is
likely to get a boost
Improving affordability, rising employment, and rise in
wealth due to the rise in stock markets, etc. is positive
for real estate demand
Real estate volumes have picked up and the trend is likely to
sustain in the near term
Increased transparency on account of RERA has renewed
buyer confidence
Consolidation and formalisation of sector an emerging trend
36
31
2827
34
38
5658
44
37
49
53
5050
48
44
38
3433
30
2728
31
33
35
0
10
20
30
40
50
60
FY01
FY02
FY03
FY04
FY05
FY06
FY07
FY08
FY09
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
FY20
FY21
FY22
FY23 @7.5%
FY23 @8.5%
FY23 @9.5%
(%)
Affordability ratio (Home loan payment / Income ratio)
-100%
-50%
0%
50%
100%
150%
200%
1Q09
3Q09
1Q10
3Q10
1Q11
3Q11
1Q12
3Q12
1Q13
3Q13
1Q14
3Q14
1Q15
3Q15
1Q16
3Q16
1Q17
3Q17
1Q18
3Q18
1Q19
3Q19
1Q20
3Q20
1Q21
3Q21
1Q22
New Launches, YoY% New Sales, YoY%
Housing is an important part of Gross capital formation
and its revival should support faster growth
Nature of cycles…
22
1
Private capex outlook
39
Broad based improvement in profitability across major manufacturing sectors like metals, cement, sugar, textile,
chemicals, paper, etc.
Conducive environment for private capex
Corporate leverage is near 10 year low
Improved competitiveness vis –a – vis China
Rising interest of global MNCs to set up manufacturing driven by China plus one policy
Supportive government policies and thrust on “Aatmanirbhar Bharat”
1%
2%
2%
3%
3%
4%
4%
5%
5%
6%
FY08
FY09
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
FY20
FY21
FY22
NSE 500 Capex to GDP %
0.99
0.71
0.40
0.50
0.60
0.70
0.80
0.90
1.00
1.10
FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21 FY22E
(x)
Deleveraging cycle
Source: CEIC, Capitaline ICICI Securities
1.4 1.5 1.8 2.0 2.2 2.7
3.3
3.9 3.8 4.2 3.9 4.1
5.3 5.2
6.3 6.7
1.1
1.6
1.6 1.7
1.9
2.0
2.5
2.9 2.6
3.1 3.4
4.3
5.9
6.6
6.0
7.5
4.2
5.9 5.6 5.2
5.3
4.7
4.6
5.2 5.3
6.3
5.5
5.5
6.3
6.3
6.3
7.1
0
5
10
15
20
25
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
FY20
FY21
FY22
TTM
FY22E
FY23E
Capex (Rs trillion)
State capexCentre capexListed corporates capex
Combined capex of govt. and listed corporates
rising from Rs10-12 trillion range
to >Rs 21 trillion range in FY23
22
1
Private capex outlook
39
Broad based improvement in profitability across major manufacturing sectors like metals, cement, sugar, textile,
chemicals, paper, etc.
Conducive environment for private capex
Corporate leverage is near 10 year low
Improved competitiveness vis –a – vis China
Rising interest of global MNCs to set up manufacturing driven by China plus one policy
Supportive government policies and thrust on “Aatmanirbhar Bharat”
1%
2%
2%
3%
3%
4%
4%
5%
5%
6%
FY08
FY09
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
FY20
FY21
FY22
NSE 500 Capex to GDP %
0.99
0.71
0.40
0.50
0.60
0.70
0.80
0.90
1.00
1.10
FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21 FY22E
(x)
Deleveraging cycle
Source: CEIC, Capitaline ICICI Securities
1.4 1.5 1.8 2.0 2.2 2.7
3.3
3.9 3.8 4.2 3.9 4.1
5.3 5.2
6.3 6.7
1.1
1.6
1.6 1.7
1.9
2.0
2.5
2.9 2.6
3.1 3.4
4.3
5.9
6.6
6.0
7.5
4.2
5.9 5.6 5.2
5.3
4.7
4.6
5.2 5.3
6.3
5.5
5.5
6.3
6.3
6.3
7.1
0
5
10
15
20
25
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
FY20
FY21
FY22
TTM
FY22E
FY23E
Capex (Rs trillion)
State capexCentre capexListed corporates capex
Combined capex of govt. and listed corporates
rising from Rs10-12 trillion range
to >Rs 21 trillion range in FY23
Nature of cycles…
22
1
Startup ecosystem in India
40
Investments in startups have been increasing despite pandemic on back of rising digital
penetration and availability of risk capital
Journey of becoming a Unicorn has become shorter
Estimates suggest that number of Indian startups is set to nearly double to 1 lakh over next
4 years and start ups could employ over 3.25 million people
Indian startup ecosystem has seen significant progress over the past few years and has become
a critical growth driver for India
India has overtaken China in number of new unicorns* in 2021
Crackdown on China tech sector has possibly impacted start-up funding in China
*Unicorns are referred to private firms valued at USD 1 billion or more
Availability of big talent pool, large market and risk capital bode well for startup ecosystem
3 years
Naukri, Makemytrip
Zomato, Flipkart and Policy bazaar
Nykaa and Oyo
Udaan and Ola Electric
20 years
8 to 10 years
5-6 years
Period to become UnicornName of Startups
Source: An article published in Feb 2021 on Yahoo.com
11 12 13 14 15 16 17 18 19 20 212 3 2
5
8
17
331 2
0 0
0 11
3
27
21
24
33
31
16
19
40
30
20
10
0
Yearly new Unicorns - India Vs China
India China
1.6
5.4
8.5
3.9
11.3
7.6
14.8
12.8
34.5
0
10
20
30
40
2013 2014 2015 2016 2017 2018 2019 2020 2021
Investment in startups (USD Bn)
Source: 3one4 Capital reportSource: Article by Hindu business line published on 20 Oct 2021
22
1
Startup ecosystem in India
40
Investments in startups have been increasing despite pandemic on back of rising digital
penetration and availability of risk capital
Journey of becoming a Unicorn has become shorter
Estimates suggest that number of Indian startups is set to nearly double to 1 lakh over next
4 years and start ups could employ over 3.25 million people
Indian startup ecosystem has seen significant progress over the past few years and has become
a critical growth driver for India
India has overtaken China in number of new unicorns* in 2021
Crackdown on China tech sector has possibly impacted start-up funding in China
*Unicorns are referred to private firms valued at USD 1 billion or more
Availability of big talent pool, large market and risk capital bode well for startup ecosystem
3 years
Naukri, Makemytrip
Zomato, Flipkart and Policy bazaar
Nykaa and Oyo
Udaan and Ola Electric
20 years
8 to 10 years
5-6 years
Period to become UnicornName of Startups
Source: An article published in Feb 2021 on Yahoo.com
11 12 13 14 15 16 17 18 19 20 212 3 2
5
8
17
331 2
0 0
0 11
3
27
21
24
33
31
16
19
40
30
20
10
0
Yearly new Unicorns - India Vs China
India China
1.6
5.4
8.5
3.9
11.3
7.6
14.8
12.8
34.5
0
10
20
30
40
2013 2014 2015 2016 2017 2018 2019 2020 2021
Investment in startups (USD Bn)
Source: 3one4 Capital reportSource: Article by Hindu business line published on 20 Oct 2021
Nature of cycles…
22
1
India - Well poised versus other economies
41
Structural tailwinds of demand, digitisation, demography and democracy hold India in good stead
Amidst various challenges, GDP growth still expected to be higher than most economies
Relatively low leverage should minimize the impact of tightening monetary policies and reversal in
interest rate cycle
Debt to GDP %
Source: IMF Source:BIS
GDP Growth Projection % (IMF)
6.8
3.2
2.4
3.7
3.2
6.1
4.4
1.1
3.7
2.7
0
1
2
3
4
5
6
7
8
India China Advanced
economies
Emerging market
and developing
economies
World
2022 2023
50
100
150
200
250
300
350
Dec-01
Dec-02
Dec-03
Dec-04
Dec-05
Dec-06
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
Dec-20
Dec-21
China India Advanced economies Emerging market economies
22
1
India - Well poised versus other economies
41
Structural tailwinds of demand, digitisation, demography and democracy hold India in good stead
Amidst various challenges, GDP growth still expected to be higher than most economies
Relatively low leverage should minimize the impact of tightening monetary policies and reversal in
interest rate cycle
Debt to GDP %
Source: IMF Source:BIS
GDP Growth Projection % (IMF)
6.8
3.2
2.4
3.7
3.2
6.1
4.4
1.1
3.7
2.7
0
1
2
3
4
5
6
7
8
India China Advanced
economies
Emerging market
and developing
economies
World
2022 2023
50
100
150
200
250
300
350
Dec-01
Dec-02
Dec-03
Dec-04
Dec-05
Dec-06
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
Dec-20
Dec-21
China India Advanced economies Emerging market economies
Nature of cycles…
22
1
Medium term issues / Risks
42
Source : IMF Data, Kotak Institutional Equities, Bloomberg
3.5
3.0
8.9
7.1
0
2
4
6
8
10
AE EM
Fiscal Deficit (% of GDP)
2011-19 2020-21
Elevated commodity prices – supply constraint, Ukraine,
Demand recovery, China
$10/bbl increase in oil impacts CAD by $13-15b
Deflationary impact of China’s manufacturing is fading
Large fiscal and monetary stimulus in response to
pandemic to support demand
Geopolitics
40
60
80
100
120
140
160
Sep-12
Sep-13
Sep-14
Sep-15
Sep-16
Sep-17
Sep-18
Sep-19
Sep-20
Sep-21
Sep-22
Bloomberg Commodity Index
0
5
10
15
Sep-72
Sep-77
Sep-82
Sep-87
Sep-92
Sep-97
Sep-02
Sep-07
Sep-12
Sep-17
Sep-22
US 10Y G-Sec Yield %
8.2
-5
0
5
10
15
20
Sep-72
Sep-77
Sep-82
Sep-87
Sep-92
Sep-97
Sep-02
Sep-07
Sep-12
Sep-17
Sep-22
US Retail Inflation %
22
1
Medium term issues / Risks
42
Source : IMF Data, Kotak Institutional Equities, Bloomberg
3.5
3.0
8.9
7.1
0
2
4
6
8
10
AE EM
Fiscal Deficit (% of GDP)
2011-19 2020-21
Elevated commodity prices – supply constraint, Ukraine,
Demand recovery, China
$10/bbl increase in oil impacts CAD by $13-15b
Deflationary impact of China’s manufacturing is fading
Large fiscal and monetary stimulus in response to
pandemic to support demand
Geopolitics
40
60
80
100
120
140
160
Sep-12
Sep-13
Sep-14
Sep-15
Sep-16
Sep-17
Sep-18
Sep-19
Sep-20
Sep-21
Sep-22
Bloomberg Commodity Index
0
5
10
15
Sep-72
Sep-77
Sep-82
Sep-87
Sep-92
Sep-97
Sep-02
Sep-07
Sep-12
Sep-17
Sep-22
US 10Y G-Sec Yield %
8.2
-5
0
5
10
15
20
Sep-72
Sep-77
Sep-82
Sep-87
Sep-92
Sep-97
Sep-02
Sep-07
Sep-12
Sep-17
Sep-22
US Retail Inflation %
Nature of cycles…
22
1
Unwinding of dovish monetary policies
43
Source : Bloomberg, As of 31st July 2022
Ultra-loose monetary policies post GFC 2008
Benign interest rates and substantial liquidity infusion post pandemic supported asset prices
Unwinding of dovish monetary policies to counter inflation could weigh on equity valuations
Higher interest rates and consequently, higher cost of capital could impact profitability of levered companies
19%
38%
33%
57%
0%
10%
20%
30%
40%
50%
60%
CY19 CY21
US EU
-
5
10
15
20
Jul-17 Jul-18 Jul-19 Jul-20 Jul-21 Jul-22
Global Negative Yielding Debt (USD Trillion)
0%
20%
40%
60%
80%
100%
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
% of Central Banks
Central Bank Policy actions
Central Banks with Rate Cuts
No Change
Central Banks with Rate Hikes
8,027
2,085
-1,550
-4000
-2000
0
2000
4000
6000
8000
10000
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
G3 Change in Balance Sheet Size (USD Bn)
Source : Bloomberg
Source : BIS As of 30-Jun -2022
Source : Bloomberg, 2022 CYTD upto 31-July-2022
Central Bank Balance sheets as % of GDP
22
1
Unwinding of dovish monetary policies
43
Source : Bloomberg, As of 31st July 2022
Ultra-loose monetary policies post GFC 2008
Benign interest rates and substantial liquidity infusion post pandemic supported asset prices
Unwinding of dovish monetary policies to counter inflation could weigh on equity valuations
Higher interest rates and consequently, higher cost of capital could impact profitability of levered companies
19%
38%
33%
57%
0%
10%
20%
30%
40%
50%
60%
CY19 CY21
US EU
-
5
10
15
20
Jul-17 Jul-18 Jul-19 Jul-20 Jul-21 Jul-22
Global Negative Yielding Debt (USD Trillion)
0%
20%
40%
60%
80%
100%
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
% of Central Banks
Central Bank Policy actions
Central Banks with Rate Cuts
No Change
Central Banks with Rate Hikes
8,027
2,085
-1,550
-4000
-2000
0
2000
4000
6000
8000
10000
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
G3 Change in Balance Sheet Size (USD Bn)
Source : Bloomberg
Source : BIS As of 30-Jun -2022
Source : Bloomberg, 2022 CYTD upto 31-July-2022
Central Bank Balance sheets as % of GDP
Nature of cycles…
22
1
Equity Market Valuations
44
Source: Bloomberg, As of October 21, 2022.
Nifty50 Index close on October 21, 2022: 17576.30
Historical Valuations : NIFTY50
Nifty 50 Valuations (P/E)
NIFTY50 1 Yr Fwd P/E
17.6
Current 20.9
10 Yr Average
20.9
15.9
5
10
15
20
25
30
Oct-12
Oct-13
Oct-14
Oct-15
Oct-16
Oct-17
Oct-18
Oct-19
Oct-20
Oct-21
1 Year Forward P/E
1 Year forward P/E : NIFTY 50Avg Mean+1SD Mean-1SD
22
1
Equity Market Valuations
44
Source: Bloomberg, As of October 21, 2022.
Nifty50 Index close on October 21, 2022: 17576.30
Historical Valuations : NIFTY50
Nifty 50 Valuations (P/E)
NIFTY50 1 Yr Fwd P/E
17.6
Current 20.9
10 Yr Average
20.9
15.9
5
10
15
20
25
30
Oct-12
Oct-13
Oct-14
Oct-15
Oct-16
Oct-17
Oct-18
Oct-19
Oct-20
Oct-21
1 Year Forward P/E
1 Year forward P/E : NIFTY 50Avg Mean+1SD Mean-1SD
Nature of cycles…
22
1
45
Product Labelling
HDFC Business Cycle Fund (An open ended equity scheme following business cycle
theme) is suitable for investors who are seeking*:
To generate long-term capital appreciation/ income
Investment predominantly in equity & equity related instruments of business
cycle based theme
*Investors should consult their financial advisers, if in doubt about whether the
product is suitable for them.
# The product labeling assigned during the NFO is based on internal
assessment of the scheme characteristics or model portfolio and the same may vary
post NFO when the actual investments are made.
Riskometer #
22
1
45
Product Labelling
HDFC Business Cycle Fund (An open ended equity scheme following business cycle
theme) is suitable for investors who are seeking*:
To generate long-term capital appreciation/ income
Investment predominantly in equity & equity related instruments of business
cycle based theme
*Investors should consult their financial advisers, if in doubt about whether the
product is suitable for them.
# The product labeling assigned during the NFO is based on internal
assessment of the scheme characteristics or model portfolio and the same may vary
post NFO when the actual investments are made.
Riskometer #
Nature of cycles…
22
1
46
Product Labelling
NAME OF THE SCHEME(S) THIS PRODUCT IS SUITABLE FOR INVESTORS WHO ARE SEEKING* RISKOMETER OF THE SCHEME(S)#
HDFC Hybrid Debt Fund
(An open ended Fund of Funds scheme investing in
equity oriented, debt oriented and gold ETFs schemes)
*Investors should consult their financial advisers, if in doubt about whether the product is suitable for them.
# For latest riskometer, investors may refer to the Monthly Portfolios disclosed on the website of the Fund viz. www.hdfcfund.com
HDFC Asset Allocator Fund of Funds
To generate long-term income/capital appreciation
Investments primarily in debt securities, money market
instruments and moderate exposure to equities
Capital appreciation over long term
Investment predominantly in equity oriented, debt oriented
and Gold ETF schemes.
(An open ended hybrid scheme investing
predominantly in debt instruments)
V
e
r
y
H
ig
h
Lo w t o
M
od e r a te
L
o
w
Moderate
Moderate
ly
High
H
i
g
h
RISKOM ETER
22
1
46
Product Labelling
NAME OF THE SCHEME(S) THIS PRODUCT IS SUITABLE FOR INVESTORS WHO ARE SEEKING* RISKOMETER OF THE SCHEME(S)#
HDFC Hybrid Debt Fund
(An open ended Fund of Funds scheme investing in
equity oriented, debt oriented and gold ETFs schemes)
*Investors should consult their financial advisers, if in doubt about whether the product is suitable for them.
# For latest riskometer, investors may refer to the Monthly Portfolios disclosed on the website of the Fund viz. www.hdfcfund.com
HDFC Asset Allocator Fund of Funds
To generate long-term income/capital appreciation
Investments primarily in debt securities, money market
instruments and moderate exposure to equities
Capital appreciation over long term
Investment predominantly in equity oriented, debt oriented
and Gold ETF schemes.
(An open ended hybrid scheme investing
predominantly in debt instruments)
V
e
r
y
H
ig
h
Lo w t o
M
od e r a te
L
o
w
Moderate
Moderate
ly
High
H
i
g
h
RISKOM ETER
NAME OF THE SCHEME(S) THIS PRODUCT IS SUITABLE FOR INVESTORS WHO ARE SEEKING* RISKOMETER OF THE SCHEME(S)#
HDFC Housing Opportunities Fund
(An open ended equity scheme investing in Banking
and Financial Services Sector)
HDFC Banking & Financial
Services Fund
Capital appreciation over long term
Investment predominantly in equity and equity related
instruments of entities engaged in and/ or expected to benefit
from the growth in housing and its allied business activities.
To generate long-term capital appreciation/ income
Investment predominantly in equity & equity related
instruments of banking and financial services companies.
(An open ended equity scheme following housing and
allied activities theme)
HDFC Infrastructure Fund To generate long-term capital appreciation/income
investment predominantly in equity and equity related
securities of companies engaged in or expected to benefit
from the growth and development of infrastructure
(An open-ended equity scheme following
infrastructure theme)
Nature of cycles…
22
1
47
Product Labelling
HDFC Balanced Advantage Fund
*Investors should consult their financial advisers, if in doubt about whether the product is suitable for them.
# For latest riskometer, investors may refer to the Monthly Portfolios disclosed on the website of the Fund viz. www.hdfcfund.com
To generate long-term capital appreciation / income
Investments in a mix of equity and debt instruments
(An open ended balanced advantage fund)
HDFC Flexi Cap Fund To generate long-term capital appreciation / income
Investment predominantly in equity & equity related instruments
(An open ended dynamic equity scheme investing
across large cap, mid cap, small cap stocks)
HDFC Housing Opportunities Fund
(An open ended equity scheme investing in Banking
and Financial Services Sector)
HDFC Banking & Financial
Services Fund
Capital appreciation over long term
Investment predominantly in equity and equity related
instruments of entities engaged in and/ or expected to benefit
from the growth in housing and its allied business activities.
To generate long-term capital appreciation/ income
Investment predominantly in equity & equity related
instruments of banking and financial services companies.
(An open ended equity scheme following housing and
allied activities theme)
HDFC Infrastructure Fund To generate long-term capital appreciation/income
investment predominantly in equity and equity related
securities of companies engaged in or expected to benefit
from the growth and development of infrastructure
(An open-ended equity scheme following
infrastructure theme)
Nature of cycles…
22
1
47
Product Labelling
HDFC Balanced Advantage Fund
*Investors should consult their financial advisers, if in doubt about whether the product is suitable for them.
# For latest riskometer, investors may refer to the Monthly Portfolios disclosed on the website of the Fund viz. www.hdfcfund.com
To generate long-term capital appreciation / income
Investments in a mix of equity and debt instruments
(An open ended balanced advantage fund)
HDFC Flexi Cap Fund To generate long-term capital appreciation / income
Investment predominantly in equity & equity related instruments
(An open ended dynamic equity scheme investing
across large cap, mid cap, small cap stocks)
Nature of cycles…
22
1
48
This presentation dated 27
th
October, 2022 has been prepared by HDFC Asset Management Company Limited (HDFC AMC) based on internal data,
publicly available information and other sources believed to be reliable. Any calculations made are approximations, meant as guidelines only,
which you must confirm before relying on them. The information contained in this document is for general purposes only and not an investment
advice. The document is given in summary form and does not purport to be complete. The document does not have regard to specific investment
objectives, financial situation and the particular needs of any specific person who may receive this document. The information/ data herein alone
are not sufficient and should not be used for the development or implementation of an investment strategy. The statements contained herein are
based on our current views and involve known and unknown risks and uncertainties that could cause actual results, performance or events to
differ materially from those expressed or implied in such statements. Past performance may or may not be sustained in future. Stocks/Sectors
referred in the presentation are illustrative and should not be construed as an investment advice or a research report or a recommended by HDFC
Mutual Fund / AMC. The Fund may or may not have any present or future positions in these sectors. HDFC Mutual Fund/AMC is not guaranteeing /
offering / communicating any indicative yield on investments made in the scheme(s). The data/statistics are given to explain general market
trends in the securities market, it should not be construed as any research report/research recommendation. Neither HDFC AMC and HDFC Mutual
Fund nor any person connected with them, accepts any liability arising from the use of this document. The recipient(s) before acting on any
information herein should make his/her/their own investigation and seek appropriate professional advice and shall alone be fully responsible /
liable for any decision taken on the basis of information contained herein.
Disclaimer
MUTUAL FUND INVESTMENTS ARE SUBJECT TO MARKET RISKS,
READ ALL SCHEME RELATED DOCUMENTS CAREFULLY.
22
1
48
This presentation dated 27
th
October, 2022 has been prepared by HDFC Asset Management Company Limited (HDFC AMC) based on internal data,
publicly available information and other sources believed to be reliable. Any calculations made are approximations, meant as guidelines only,
which you must confirm before relying on them. The information contained in this document is for general purposes only and not an investment
advice. The document is given in summary form and does not purport to be complete. The document does not have regard to specific investment
objectives, financial situation and the particular needs of any specific person who may receive this document. The information/ data herein alone
are not sufficient and should not be used for the development or implementation of an investment strategy. The statements contained herein are
based on our current views and involve known and unknown risks and uncertainties that could cause actual results, performance or events to
differ materially from those expressed or implied in such statements. Past performance may or may not be sustained in future. Stocks/Sectors
referred in the presentation are illustrative and should not be construed as an investment advice or a research report or a recommended by HDFC
Mutual Fund / AMC. The Fund may or may not have any present or future positions in these sectors. HDFC Mutual Fund/AMC is not guaranteeing /
offering / communicating any indicative yield on investments made in the scheme(s). The data/statistics are given to explain general market
trends in the securities market, it should not be construed as any research report/research recommendation. Neither HDFC AMC and HDFC Mutual
Fund nor any person connected with them, accepts any liability arising from the use of this document. The recipient(s) before acting on any
information herein should make his/her/their own investigation and seek appropriate professional advice and shall alone be fully responsible /
liable for any decision taken on the basis of information contained herein.
Disclaimer
MUTUAL FUND INVESTMENTS ARE SUBJECT TO MARKET RISKS,
READ ALL SCHEME RELATED DOCUMENTS CAREFULLY.
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