HDFC Growth: Invest :: Business Line

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Investors can buy units of HDFC Growth Fund based on its steady track record. Besides outperformance in rallies, the fund contains downside during market corrections through significant cash calls or by taking defensive bets.

Although HDFC Growth is benchmarked to the Sensex, it takes exposure to stocks across market capitalisations. It invests in mid- and small-cap stocks (i.e. those with market capitalisation of Rs 7,500 crore and below) to the extent of 30-40 per cent of its portfolio. This pegs up the risk associated with the fund when compared with sister funds such as HDFC Equity, which focuses predominantly on large-cap stocks.

PERFORMANCE AND STRATEGY

Over three- and five-year timeframes, the fund beat the returns of its benchmark to the extent of 3-5 percentage points. The fund’s returns have bettered the broader market represented by the BSE 500 too, by 5-6 percentage points in the same period. Though the returns cannot be considered among the best in class, this outperformance places the fund in the top quartile of diversified funds; it has beaten other multi-cap oriented funds such as Frankin Flexicap and DSPBR Opportunities while trailing best performing funds such as Reliance Equity Opportunities and UTI Opportunities.

One reason for the moderate returns could be its leanings towards a ‘value’ approach to investing. For example, even as many funds held on to or increased exposure to the consumer non-durables space in the last 12-18 months, the fund pruned its holdings as valuations started inching up in this space.

This prevented it from capitalising on the run-up in stocks such as Nestle, which it exited in mid-2011 itself. Similarly, while the fund cut its exposure to capital goods and construction stocks in the first half of 2012, it has maintained its holdings at around 10 per cent since then, considering the beaten down valuations.

The fund contained losses in the 2008 fall, thanks to its higher cash holdings. However, the caution did not help in 2009 where it missed out on the rally, being too late to deploy cash back into equities. After this lesson, the fund did not move into cash in the 2011 fall. It, instead, bought into defensives and managed to stay ahead of the benchmark in 2011.

PORTFOLIO

The fund takes exposure to a large number of sectors covering a broad spectrum of the market. Exposure to most sectors, except banks, is less than 10 per cent of the portfolio. The number of stocks it holds is in the 20-45 range. However, its top picks are consistently large-caps such as ICICI Bank, Infosys, SBI, Reliance Industries and ITC. Two smaller stocks that figure among the top holdings are Solar Industries and Tata Motors DVR.

The NAV per unit of the growth option is Rs 94.74.