Moneycontrol
Nov 28, 2017 07:19 PM IST | Source: CNBC-TV18

HDFC Housing Opportunities Fund focuses on housing theme & multiple sectors: HDFC AMC

HDFC Mutual Fund has come out with HDFC Housing Opportunities Fund that focuses on the housing theme and the multiple opportunities it offers in various sectors including paints, cement, electrical and so on.

CNBC TV18 @moneycontrolcom

HDFC Mutual Fund has come out with HDFC Housing Opportunities Fund that focuses on the housing theme and the multiple opportunities it offers in various sectors including paints, cement, electrical and so on.

In an interview to CNBC-TV18, Srinivas Rao Ravuri, Senior Fund Manager at HDFC AMC shared his views and readings on the same.

Ravuri said this fund is not about investing in housing finance companies. It's a much broader theme.

We see construction companies as an interesting space, banks and cement, said Ravuri.

"Even under the new rule, Sebi says we can do thematic funds. So this is a thematic fund. We are extremely positive on the outlook for housing sector," he added.

Ravuri mentioned that this fund is a mix of equity and debt, so we will have 10-20 percent debt also. So it should be compared with balanced fund and not with a pure diversified equity fund.

Below is the verbatim transcript of the interview.

Surabhi: Interesting concept at a time when housing finance and housing finance providers have been the darlings of the market. So first simple question, why now some would say it is a little too late considering the stocks have already run up so much?

A: This fund is not about investing in housing finance companies. This is a much broader theme. We are saying this is a housing opportunities fund. So where we would like to invest across the value chain, whether it is the housing finance company, steel company, cement company, plywood companies, paint companies. So this is not a one sector, this is a broader theme and within that we think the affordable housing is the one which we are betting most on. And that is where in the last 3-6 months we are seeing very good traction. That is where we think this is a good time.

Anuj: Even within that, ceramic stocks have had a huge run. The housing finance of course, we all know has had a good run, all these paint companies. Have you decided initially how much money will go in particular sub sectors or would it be dynamic?

A: It will be dynamic. What we have done is we actually created index for this fund. Whenever we launch a fund, we need to have a relevant benchmark. So there was no relevant benchmark. So along with NSE, we created a new index called India Housing and Business Allied Index.

Anuj: It is there on the NSE as well?

A: Yes, it will be there on the NSE and our website also. So it has been customised for us. So if you see the breakup on that index we have 14 sectors. Banks is about 20 percent, cement is about 16 percent, steel is about 13 percent, construction is about 12 percent, then real estate is about 5 percent, then paints. So it is across these sectors. Of course, this is the weightage of the index, so this will be actively managed fund so obviously my weightage would be different. This is a broad spectrum rather than a, building products again I agree that stocks have run up a lot and valuations are no longer cheap, but we are saying we would like to play it through a broader theme rather than any one or two sectors.

Latha: You have banks, not housing finance companies?

A: We have housing finance also.

Latha: How is the weightage for banks and housing finance?

A: Banks is 20 percent, housing finance is 14 percent.

Surabhi: But that is in the index? And as you are saying this is an actively managed fund. You are going to ascribe different weights. You will pick and choose as per your liking. So what is the bent of mind right now for you in terms of weights you would want to give these different components?

A: Housing finance again, I am a little bit worried because valuations are again not attractive. Building products again, a segment that is quite demanding. So we will see as we go forward. We have about three months to deploy the money. So few segments are expensive, but that makes our jobs more challenging but we will do it.

Latha: NSE did that index sitting with you? That is a little unfair, is it not? They cannot customise it to your taste.

A: When we wanted to do a product like this, we said we would like to have an index that is relevant to this theme and that is when, okay this is a theme. So everyone can say that we can create index there.

Surabhi: Whether you can outperform this new housing index or not.

A: Index is in the public domain. Everyone can see what are the weightages.

Latha: Of course, it has to be. I am just saying, how can they take your inputs into the creation of an index?

A: We said we wanted an index which reflects this theme and finally they will do what they want to do.

Latha: You only tell them reflecting the theme and it is put together by them?

A: Yes, correct. For example, I manage HDFC Infrastructure Fund and there is an infrastructure index of NSE in which L&T is 30 percent weightage and Airtel is about 15 percent weightage whereas as a mutual fund manager, I cannot buy more than 10 percent in individual stock. So I am saying, to that extent, it is not relevant for me. As a fund manager, I can bear maximum 10 percent whereas index has 30 percent weightage to one stock.

Surabhi: So coming back to the point that fair, NSE will ascribe whatever weights they want to the ascribe to the constituents of this new housing index, what are you most bullish on? You acknowledge that a lot of the pockets, building materials, housing finance companies have already run up. So where do you see the next kicker?

A: We see construction as an interesting space, construction companies, then banks and then cement.

Surabhi: When you say construction companies, what do you mean? Construction is a looser term, that could include road operators, etc.  So, in a housing sense, when you say construction, do you mean developers, real estate developers?

A: No, companies actually build houses. So whereas a developer also owns land and sell it. I am talking about the guys who actually do construction, that is an interesting space because in the affordable housing space, what you need is someone who actually can build in a timely manner and scale not building a 100-2,000 units or 10,000-20,000 units in the next 12 months or 18 months. That is where it is going to be an interesting opportunity.

Latha: It has got a lock-in?

A: Three year lock-in fund.

Latha: I will tell you where my discomfort comes from. In the heyday of infrastructure, maybe 2004 or 2005, I got into an infrastructure fund with a lock-in and it made sense because infrastructure projects will take time to come up, and by the time the lock-in opened, I was seriously out of money. So what happens? Now housing boom and housing material all look very good. Three years down the line, we do not know. It is quite possible that there is an IT boom. You will be constrained no, you cannot take out the money.

A: Two parts to that question. One is, it is true it is a lock-in and to that extent, one can say that it is a disadvantage. But when we are doing a fund, we are also clear that I need to have some time for the fund to deliver. That is why we said we need gestation period that is three years. Coming to your concerned, we have two provisions. One is this is not a 100 percent equity product. We also can invest upto 10-20 percent in debt.

Latha: Any debt?

A: Any debt.

Latha: It means even government of India?

A: We are saying corporate debt, corporate papers. Number two, we are also taking an enabling provisioning for buying a put option. We are saying that if we think that markets have run rallied out and the fund has done very well, we can also go and buy put option to partly lock in our gains. So those things can address your concern on the lock in.

Surabhi: This is lock-in because does it enjoy the Equity Linked Savings Schemes (ELSS) advantage?

A: No there is no tax advantage.

Anuj: What would be the corpus that you are planning in terms of the money initially and is there any size that you have in mind?

A: We do not have a number to tell everyone. We think the response has been pretty good, so we are looking at very good numbers. We will close the fund on 30th.

Anuj: How much have you generated already?

A: Wait for three days, you will see the number.

Latha: I have a lot of HDFC funds. Let me put that as a disclosure. My sense is that it has always so far in my 14 years of investing in mutual funds, my discovery has been giving the fund manager complete freedom even between equities and debt has worked because you really do not know which is the next sector that will do well. But in your case, you already have those kinds of funds, extremely well performing funds under Prashant Jain. So, is that why because of the new SEBI rules, you are forced to give sector categories because you cannot launch another fund like the repertoire you already have.

A: No not really. Even under the new rules, SEBI clearly says we can do thematic funds. So this is a thematic fund. We are extremely positive on the outlook for housing sector. In a diversified equity fund, most of our funds are diversified, except the infra fund which is one thematic fund we have. So even if you like particular thing, there are restriction in a sense of how much overweight or underweight you can be. So whereas here, if we like this theme, as per SEBI again if it is thematic fund, 80 percent of the investments have to be in that theme. So we are giving an opportunity for investor who is interested, who likes this space to take a meaningful exposure to the sector.

Surabhi: So they say a diversified equity fund should typically give you at least 15 percent over a 3-4 year horizon. Concentrated risk in terms of sectors? What sort of a performance benchmark are you setting for yourself with this fund?

A: 15 percent is expectation when FDI rates were 10-11 percent. When FDI rate is at 6 percent the expectations have to be lower, point number one. Point number two, we are saying that this is a mix of equity and debt so we will have 10-20 percent debt also. So it should be compared with a balance fund, not with a pure diversified equity fund.
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