Nivesh Mitr talks to Vinay Kulkarni, Senior Fund Manager – Equities, HDFC Asset Management Co. Ltd. on the current market scenario and the recommendations for investing in an ELSS fund.

Nivesh Mitr (NM): Global markets are keeping us back while crude has gone down by around 20% to 12–month lows. How would you assess the current market scenario?

Vinay Kulkarni (VK): If oil prices sustain at current levels it is definitely positive for India’s overall macroeconomic position, especially the external sector. Thanks to lower crude prices, we see stable INR as well as interest rates and a lower burden on fiscal position over the next few months. INR has already appreciated by over 6% versus the USD from its lowest levels in early October-18. Further, there are signs of US Federal Reserve likely to slow down rate hikes in 2019, which should calm down the fixed income and foreign exchange markets. All these factors should be favourable for both equities as well as fixed income markets in our opinion.

NM: Any particular themes you are currently eyeing on?

VK: A theme that we are currently eyeing is interest rate sensitive sectors such as attractively valued corporate lenders, utilities and industrials/capital goods sectors. They should benefit from the macro-economic changes such as lower inflation, lower interest rates and a stable currency. These sectors have underperformed in recent past and are attractively valued in our opinion.

NM: How are you mapping the earnings picture to evaluate valuations?

VK: NIFTY 50 is trading near 18x CY18 (e) and 15x CY19 (e) (as per Bloomberg estimates dtd. 31 Oct 2018). These are reasonable multiples especially in view of improving profit growth outlook. Markets thus hold promise over the medium to long term in our opinion. Adverse global events, sharp moderation in equity oriented mutual funds flows and delays in NPA resolution under NCLT are key risks in the near term.

NM: Sectors you are currently underweight on?

VK: The fund is underweight on NBFCs (with high valuations and risky business model) and certain highly valued retail banks. The fund is also underweight on consumer durables and non-durables, given their rich valuations.

NM: The current portfolio of HDFC Tax Saver Fund is largely skewed towards large caps. With mid & small cap stocks undergone deep corrections; will you consider increasing allocation in them, or stick to large cap names?

VK: Large-cap stocks have largely under-performed mid and small cap stocks in the last 5 years. This has been mainly attributed to weak earnings growth among large caps. NIFTY EPS grew at an annualised rate of only 3.5% in the last 5 years.

However, large-caps stocks have significantly outperformed mid and small cap stocks in the current financial year.  This may mostly be because earnings growth is likely to come back strongly. NIFTY EPS is expected to grow at an annualised rate of almost 21% (Source: Kotak Institutional Equities) over FY 2018-20. Large-caps, therefore, present an opportunity for generating returns, and we may continue to invest in large caps in the near future.

NM: What is the stock selection criterion you adopt for managing HDFC Tax Saver fund?

VK: The fund aims to focus on growth at a reasonable price strategy. In order to provide long term capital appreciation, the fund will invest mainly in companies with high expected growth rates. Such companies would generally be medium to large size companies which –

• Are likely to achieve above average growth in the industry
• Enjoy distinct competitive advantages
• Have superior financial strength

NM: What is the dividend strategy in HDFC TaxSaver?

VK: The amount of dividend to be distributed depends on the availability of distributable surplus. The fund has regularly paid dividends for the last 20 years. The history of dividend paid in the past has been mentioned below:

For record date wise dividend details, please visit our website www.hdfcfund.com

NM: What is the suggested investment horizon in HDFC TaxSaver?

VK: The fund is an ELSS scheme which has a lock-in period of three years. However, since the fund invests in equity assets, a long term investment horizon is suggested to investors. The fund offers twin advantages of tax saving in the near term and wealth creation over a medium to long term.

NM: Would you suggest SIP or Lump sum for investment in the fund?

VK: We suggest SIP in the fund, as it can help with tax-planning in advance. SIP is a disciplined way of investing, can help in eliminating the need to time the markets by averaging the cost of investments over time. However, even if SIPs have not been subscribed to, and with the financial year end being around the corner, lump sum investments can also be considered in order to achieve tax-saving goals.

NM: What are the prospects of HDFC TaxSaver?

VK: The fund, with large-cap exposure being close to 80% of total assets under management, and with our endeavour of investing in companies that offer growth at reasonable valuations, is an attractive tax saving and wealth creation option. Our fund management and research team with an experience of managing assets across market cycles provide us with a distinct edge.

DISCLAIMER: The views are expressed by Mr. Vinay Kulkarni, Senior Fund Manager – Equities at HDFC Asset Management Company Limited (HDFC AMC), as on 30^thNovember, 2018. The views are 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 given is for general purposes only.

Past performance may or may not be sustained in future. The current investment strategies are subject to change depending on market conditions. The statements are given in summary form and do not purport to be complete. The views / information provided do not have regard to specific investment objectives, financial situation and the particular needs of any specific person who may receive this information.

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.

Stocks/Sectors referred above are illustrative and not recommended by HDFC Mutual Fund / AMC. The Fund may or may not have any present or future positions in these sectors. The above has been prepared on the basis of information which is already available in publicly accessible media. The above should not be construed as an investment advice or a research report or a recommendation by HDFC Mutual Fund/HDFC AMC to buy or sell the stock or any other security covered under the respective sector/s. HDFC Mutual Fund/AMC is not guaranteeing any returns on investments made in the Scheme(s).

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.

For complete portfolio/details refer to our website www.hdfcfund.com. Investors should be aware that the fiscal rules / tax laws may change and there can be no guarantee that the current tax position may continue indefinitely. In view of individual nature of tax consequences, each investor is advised to consult his / her own professional tax advisor.

MUTUAL FUND INVESTMENTS ARE SUBJECT TO MARKET RISKS, READ ALL SCHEME RELATED DOCUMENTS CAREFULLY