The second wave of COVID-19 was severe, affecting a wide range of industries and stalling economic growth. The GDP growth has now bottomed out and a robust economic revival is likely in FY22 fueled by rise in demand and normalization of economic activities after a relaxation on lockdown restrictions.
Amid the pandemic, sectors such as information technology and healthcare saw growth. The banking and financial services sector has grown at a faster pace with increase in digitization and the number of investment instruments; rise in retail participation, and low interest rates bode well for capital market-linked businesses. The sector witnessed a boost in digital modes of transactions such as, UPI transaction, QR code scan payments, usage of Net banking, etc. from customers abiding to social distancing norms.
Growth in the Banking and Financial sector is indicative of the economic growth of a nation and plays an important role in the economy. We anticipate this sector will receive potential benefits from the economic recovery. Many new companies that have good potential are set to make the list over the next couple of years.
HDFC Mutual Fund has launched HDFC Banking and Financial Services Fund; it is an open-ended equity scheme investing in Banking and Financial Services Sector.
The fund house in a press release said, “This is the opportune time for banking and financial services fund with GDP growth bottoming out and robust economic growth likely in FY22 and beyond. Indian banking is in its best of shape after many years, the capex cycle likely to revive and should support credit growth, the corporate NPA cycle is behind us and should improve going forward aiding the sector.”
Table 1: Details of HDFC Banking and Financial Services Fund
|Type||An open ended equity scheme investing in Banking and Financial Services Sector||Category||Sectoral Fund|
|Investment Objective||To provide long-term capital appreciation by investing predominantly in equity and equity related instruments of companies engaged in banking and financial services. There is no assurance that the investment objective of the Scheme will be realized.|
|Min. Investment||Rs 5,000 and in multiples of Re 1 thereafter. Additional Purchase of Rs 1,000/- and in multiples of Re 1 thereafter.||Face Value||Rs 10/- per unit|
|Entry Load||Not Applicable||Exit Load||
||Benchmark Index||NIFTY Financial Services TRI (Total Returns Index)|
|Issue Opens:||June 11, 2021||Issue Closes:||June 25, 2021|
(Source: Scheme Information Document)
What will the Investment strategy for HDFC Banking and Financial Services Fund be?
The Scheme will predominantly invest in equity and equity related securities of companies engaged in banking and financial services in India and abroad. The classification of “Financial Services Companies” will be guided by AMFI Sector classification or other financial services as identified by the fund manager.
The fund manager Mr Anand Laddha said, “Over the last two decades, the financial services sector has grown faster than the rate of growth in gross domestic product. Despite this growth in the past, the penetration of various banking and financial services in Indian economy is low. The banking and financial services sector has demonstrated the ability to generate returns over the market return when the economy is in growth phase.”
The endeavour will be to invest in BFSI space with a Multi-cap strategy. The scheme will aim to invest across segments and market capitalisation including banking, broking, asset management, wealth management, insurance, non-banking financial companies(NBFC) and other financial services companies to achieve effective diversification and low correlation.
The scheme’s investment strategy seeks to invest in companies, which are market leaders due to superior execution, scale, better adoption of technology, etc. In addition, the companies that are likely to witness steady growth and/or likely to see a turnaround in profitability and have the potential of being re-rated. This fund will also focus on opportunities in new listings including pre-IPO participation.
About the benchmark
The NIFTY Financial Services Index tracks the performance of Indian financial services companies, including banks, housing finance, insurance, NBFCs, other financial services companies, etc. The index comprises a maximum of 20 stocks and a stock’s weight is based on its free float market capitalization.
Under normal circumstances, the asset allocation will be as under:
Table 2: Asset Allocation of HDFC Banking and Financial Services Fund
|Instruments||Indicative Allocation (% of assets)||Risk Profile|
|Equity and equity related instruments of banking and financial services companies||80||100||Medium to High|
|Equity and Equity related instruments of companies other than above||0||20||Medium to High|
|Non-convertible preference shares||0||10||Low to Medium|
|Units of REITs &InvITs||0||10||Medium to High|
|Debt securities*, money market instruments and Fixed Income Derivatives||0||20||Low to Medium|
*Including securitised debt, other structured obligations (SO), credit enhanced debt (CE).
(Source: Scheme Information Document)
Who will manage HDFC Banking and Financial Services Fund?
Mr Anand Laddha and Mr Sankalp Baid will be the dedicated fund managers for this scheme.
Mr Anand Laddha is Fund Manager at HDFC Asset Management Company Ltd. and he has over 16 years of experience in Equity & Derivative Research and Sales. Prior to this, he was associated with Refco-Sify Securities India Pvt. Ltd. as AVP – FII Equity & Derivative Sales and Alchemy Share & Stock Brokers Pvt. Ltd. in Equity & Derivative Sales.
Mr Laddha is B.com graduate and Chartered Accountant – ICAI. He does not manage any other schemes currently.
Mr Sankalp Baid is Credit Analyst at HDFC Asset Management Company Ltd. and has over 13 years of experience in Macroeconomics, credit analysis, trading and audit. Prior to this, he was working with BNP Paribas Bank as Assistant Vice President, India Ratings & Research as Associate Director, Future First Info Services as Analyst, and in BSR & Co (part of KPMG) as the Assurance Senior.
His qualifications include PG Diploma in Business Management from XLRI, Jamshedpur, Chartered Accountant and B.Com Hons. (University of Calcutta). In addition, He manages other schemes such as, HDFC Arbitrage Fund, HDFC Banking and PSU Debt Fund, HDFC Balanced Advantage Fund, HDFC Capital Builder Value Fund, HDFC Children’s Gift Fund, HDFC Corporate Bond Fund, HDFC Credit Risk Debt Fund, HDFC Dynamic Debt Fund, HDFC Dividend Yield Fund, HDFC Equity Opportunities Fund – Series 2, HDFC Equity Fund, HDFC Equity Savings Fund,
HDFC Fixed Maturity Plan – Series 27, 30, 38 to 40, 42 to 44, HDFC Floating Rate Debt Fund, HDFC Focused 30 Fund, HDFC Gilt Fund, HDFC Growth Opportunities Fund, HDFC Housing Opportunities Fund, HDFC Hybrid Debt Fund, HDFC Hybrid Equity Fund, HDFC Income Fund, HDFC Infrastructure Fund, HDFC Liquid Fund,
HDFC Long Term Advantage Fund, HDFC Low Duration Fund , HDFC Medium Term Debt Fund, HDFC Mid – Cap Opportunities Fund, HDFC Money Market Fund, HDFC Multi-Asset Fund, HDFC Retirement Savings Fund, HDFC Short Term Debt Fund, HDFC Small Cap Fund, HDFC TaxSaver, HDFC Top 100 Fund, and HDFC Ultra Short Term Fund.
Fund Outlook – HDFC Banking and Financial Services Fund
HDFC Banking and Financial Services Fund is mandated by SEBI to invest minimum 80% of its assets in equity and equity related securities of companies engaged in banking and financial services.
This scheme will follow active investing and stock selection will be based on companies that are leading players in their sub-segments. It will focus on investing across segments and market capitalization and in companies holding a demonstrated track record along with quality management.
Being a sectoral fund, it will follow a concentrated investment approach towards the banking and financial services sector. The performance of the scheme will depend on the performance of this particular sector.
The second wave of COVID-19 pandemic has delayed economic growth, although the economic revival may likely bounce back substantially in FY22 and after, there are few risk associated with this scheme.
The economic cycles play a significant role in the performance of the banking and financial services sector; however, any downturn in economy may impact the businesses in this sector and potential returns. This fund may hold concentration risk and majority of its assets are invested in direct equities making it a highly risky proposition.
This scheme is suitable for investors with high-risk appetite and long investment horizon to survive the market volatility. You need to ensure that your investment objective is aligned to your fund’s objective.
This article first appeared on PersonalFN here