HDFC Mutual Fund aims to invest in industries/entities that are engaged in or expected to benefit from the growth in housing and its allied business activities.
In an interview with Himadri Buch of Moneycontrol, Srinivas Rao Ravuri, Senior Fund Manager, Equities at HDFC Asset Management talked about the market and their new fund HDFC Housing Opportunities Fund that was launched today. Edited excertps:
For starters, there is no stopping to this market or there is no stopping to this bull run which probably started around December 2016 when it hit a low of 7900. What are your views on the market for this calendar year or maybe beyond that?
We believe that equity markets have lagged nominal GDP by 8 percent CAGR over the last 10 years and are consequently at an attractive market cap to GDP ratio. In P/E terms, the market is not cheap. However, one need to have a 3-5 year horizon while investing equities and not one year. Any volatility in the short-term driven by bunching of new issuances in or by international events should be used to their advantage by long term investors.
In view of the above, there is merit in increasing allocation to equities or in staying invested as the case may be (for those with a medium to long term view and in line with individual risk appetite).
There haven been two consecutive month-on-month decline in MF inflows. Do you see fatigue at higher levels or bit of redemptions or see flows back in the highs in this month or next month?
Equity mutual funds (MFs) have received healthy flows since May 2014. In recent months, inflows from systematic investment plans (SIPs) alone have amounted to a sizeable number per month. Despite heavy selling by foreign institutional investors since the demonetization announcement, Indian markets have done well, largely because of large purchases by domestic institutions.
Investment in mutual funds as a percentage of total financial savings is quite low in the country. We expect MFs to grow at a faster pace as compared to other financial assets in the long run. This will lead to healthy balancing in the market between domestic and FII flows.
Which are the sectors that you are betting on and why and which ones are you avoiding?
We aim to invest in industries/entities that are engaged in and/or expected to benefit from the growth in housing and its allied business activities. These include banking and housing finance, insurance, cement, steel, consumer durables, sanitary ware, cables, lighting, glass, metal fabrication, infrastructure, power, paints, air-conditioners, building products and capital goods (derived demand) etc.
What is your stance on PSU banks now that the government has announced recapitalization for PSU banks and do you think that’s enough? Would you reduce weight on private banks and augment stake in PSU bank stocks?
On October 24, 17, Finance Ministry announced Rs 2.1 trillion capital infusion plans for state owned banks. Consequently, all the leading analysts who were hitherto negative on PSBs have changed their view to positive.
The Rs 2.11 trillion recapitalization package announced by the government is a major initiative towards revitalizing public sector banks (PSBs) grappling with non-performing assets (NPAs) and inadequate capital, and will help them focus on credit growth. We believe that bank recapitalization is a medium to long-term story and we continue to remain positive on PSU and private banks engaged in lending to the corporate sector.
You also manage infrastructure fund. What is your take on the infrastructure sector? When will we see a pickup in that sector?
HDFC Infrastructure Fund is a broader theme-based fund focusing on all aspects of public and private infrastructure like roads, railways, ports, oil & gas and the like. Housing is a subset of the infrastructure sector.
We are very positive on the infrastructure sector given the government's thrust towards roads, railways, defense, ports and affordable housing. Further, with interest rates coming down over the last few years has provided boost for this sector.
Also, with public expenditure going up, we have already seen a pickup in activity in this sector.
Tell us about HDFC Housing Opportunities Fund. Where will the fund invest and why did you decide to launch the fund now?
HDFC Housing Opportunities Fund – Series 1 is a close-ended thematic equity fund that endeavors to provide long-term capital appreciation by investing 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.
Housing is a broad theme that impacts multiple industries – banking and housing finance, cement, steel, consumer durables, sanitary ware, cables, lighting, glass, metal fabrication, infrastructure, power, paints, air-conditioners, building products and capital goods (derived demand) etc. The scheme will invest in equities of housing & allied businesses (~80 - 100 percent of AUM) and debt and money market instruments (~0-20 percent of AUM).
The scheme may also buy put options at a later date taking into account funds’ performance and market view.
We believe that the housing sector is likely to be a big growth driver for the economy. Affordability of housing has improved with stable prices, improvement income levels and decline in mortgage rates. Further, Housing for All by 2022, program of the government has started gaining momentum.
Can you elaborate on the India Housing and Allied Businesses Index?
Since this is a thematic offering we did not find any suitable benchmark readily available. We, in association with IISL, have built a customized benchmark called India Housing and Allied Business Index. India Housing & Allied Businesses Index seeks to measure the performance of a portfolio consisting of 50 stocks that form a part of select basic industries that are into housing and allied businesses such as cement, banks, paints, housing finance, residential projects, steel, sanitary ware, house ware etc. Weight of ‘basic industry’ is capped at 20 percent and stock at 10 percent cap on a quarterly basis. Weights of basic industry and stocks may drift between the quarters due to movement in stock prices.
How much are you planning to garner through this fund?
The target investors for this fund are primarily retail and HNI investors and we expect strong participation from across length and breadth of the country. Since housing is a theme that every one of us associates with easily, the message that we are trying to put across is expected to reach the masses with ease.
What will be your advice to investors at this point and time?
The prospects of Indian economy are very promising. Equity markets have lagged behind economic growth for several years now. Equities have a good compounding potential in such an environment. To effectively benefit from India’s growth is simple, investors should estimate their risk capital (that part of wealth which can be spared for five years or more and on which volatility can be tolerated). This portion of wealth should be invested in three–five carefully chosen funds that have a track record of outperforming markets over several cycles.