Program & Batch:

Term:
Course Name:
Name of the faculty:
Topic/ Title :
Original

PGDM 2013-2015
5
Security Analysis and Portfolio
Management
Prof. Varun Dawar
HDFC growth fund analysis
Original

or Revised Write-up:
Group Number:
1
Contact No. and email of
Ph: 9811271550
Group Coordinator:
email:ft13vinayakavasthi@imt.ac.in
Group Members:
Sl. Roll No.
Name
1
1301-032 Arpit Jain
2
1301-142 Nitin Kishore
3
1301-391 Rahul Singh
4
1301-406 Shagun Agarwal
5
1301-437 Vinayak Avasthi
6
1301-579 Vibhor Rana
7
1301-535 Krishan Kumar

Table of Contents
Introduction................................................................................................................ 3
Portfolio Attribution.................................................................................................... 4
Performance Indicators............................................................................................... 5
Holding Based Portfolio Analysis.................................................................................6

Figure
Figure
Figure
Figure

1:
2:
3:
4:

Interaction effect......................................................................................... 4
IT sector performance................................................................................. 6
Total stressed assets................................................................................... 6
Sector P/E.................................................................................................... 7

Table 1: Portfolio Attribution....................................................................................... 4

Table 2: Ratios............................................................................................................ 5

Introduction
HDFC growth fund was launched in August 2000
and is currently managed by Srinivas Rao Ravuri.
The fund primarily contains large and midcap
stocks. The sector wise holdings as of FY14 are
shown below.

Sector Allocation
Telecommunication Services
Utilities
Consumer Discretionary

2.38%
3.15%
5.45%

Consumer Staples

8.15%

Materials

8.89%

Industrials

8.90%

Health Care

9.31%

Information Technology

13.14%

Energy

16.66%

Financials
0.00%

23.97%
5.00%

10.00% 15.00% 20.00% 25.00% 30.00%

Source: Bloomberg

This product is suitable for investors who are seeking:

Capital appreciation over long term

Investment predominantly in equity and equity related instruments
High risk

Portfolio Attribution
Portfolio attribution has been carried out for the fund and pure sector allocation
effect, within sector allocation effect and interaction effect have been calculated to
determine the fund managers performance.
Sectors
Financials
Energy
Information Technology
Health Care
Industrials
Materials
Consumer Staples
Consumer Discretionary
Utilities
Telecommunication Services
Total

Pure
Sector
Allocation
-0.45%
-0.02%
-0.45%
0.39%
0.31%
0.00%
-0.02%
-0.63%
0.28%
-0.12%
-0.72%

Within
Sector Interact
Allocation
ion
0.34%
0.07%
1.17%
0.01%
-3.65%
0.53%
1.00%
0.45%
-0.84%
-0.33%
-1.94%
0.01%
-0.20%
0.02%
-2.04%
0.78%
-0.33%
0.10%
-0.65%
0.29%
-7.14%
1.93%

Table 1: Portfolio Attribution

As both pure sector allocation effect and within sector allocation effect are negative,
it is clear that the fund manager as well as the equity research analysts have
underperformed. The underperformance of equity research analysts was severe as
within sector allocation effect was -7.14%.
In Financials and Energy sectors, the fund manager underperformed but the equity
research analysts outperformed as sector weight were not optimal but the specific
stock picks were good. In these sectors, interaction effect should also be attributed
to the outperformance of the equity research analysts.

In Information Technology, Consumer Staples, Consumer Discretionary and

Telecommunication Services sectors, both the fund manager and the equity
research analysts underperformed. In these cases the interaction effect is still
positive. This is because while the sector allocation decided by the fund manager

Figure 1: Interaction effect

was not optimal, the specific stock picks were even worse.
If the fund manager had made the seemingly correct decision of being overweight
in these sectors, then the performance would have been even worse due to poor
stock picks. In these sectors, interaction effect should be attributed to both the fund
manager and the equity research analysts in the ratio of their underperformance.
In Healthcare sector, both the fund manager and the equity research analysts
outperformed. The sector allocation as well as the stock picks were good and the
interaction effect should be attributed to both the fund manager and the equity
research analysts in the ratio of their outperformance.
In Industrials, Materials and Utilities sectors, the fund manager outperformed while
the equity research analysts underperformed as the sector allocation was good but
the stock picks were not optimal. The negative interaction effect in Industrials
sector should be attributed to the equity research analysts while the positive
interaction effects in the other two sectors should be attributed to the fund
manager.

Performance Indicators
Various ratios have been calculated to depict the performance of the fund for
a 5 year horizon i.e. FY09 to FY14.
Performance
measure
Sharpe Ratio
M square measure
Information ratio
Sortino ratio

HDFC growth
fund
23.18%
6.09%
53.52%
6.606

Table 2: Ratios

Yearly ratios has also been calculated.

Table 3: Sharpe Ratio

Performance
measure

Sharpe Ratio

Table 4: M square measure

HDFC growth
fund
-204.36%

FY

FY'9
FY'1
-68.30%
0
FY'1
247.19%
1
FY'1
262.69%
2
FY'1Performanc
345.52%
3 e measure
FY'1
360.88%
4

M square measure

FY
FY'9
FY'1
0
FY'1
1
FY'1
2
FY'1
3
FY'1
4

Table 5: Information Ratio

-2.81%
21.08%
26.03%
23.52%
23.07%

Table 6: Sortino Ratio

HDFC growth
fund
Sharpe
Ratio
FY'9
-1.28
FY'9
FY'1
FY'1
Sharpe ratio-0.40
gives an idea if the portfolios
0
0
returns
are due to excessive risk or better
FY'1
FY'1
312.19%
investments.
Higher
the Sharpe ratio,
downside
=0
1
1
better
is the risk-adjusted performance.
Sortino
ratio
FY'1the portfolio, the Share ratio is 23.18%
Information ratio
FY'1
378.96%
For
downside=0
2
2
on 5-year basis. Whereas, it is on an
FY'1
FY'1
435.80%
increasing
on a YOY basis.
trend
downside=0
3
3
FY'1
M
square measure
FY'1
547.15%
downside=0
4
4
It measures the return of portfolio
assuming it takes same level of risk as the market portfolio. It gives incremental
return over a market index. A positive value indicates that the portfolio has
outperformed the market. For HDFC growth fund it is 6.09% on 5-year basis. The
measure is ~20-25% for FY11-14 and has outperformed the index.

Performance
measure

FY

Information Ratio

Performance
HDFC
measure
growth fund
-127.33%
-33.81%

HDFC
growth
fund
-14.58%

FY

It measures the portfolio managers ability to generate excess returns over a

benchmark on a consistent basis. Higher the information ratio, higher is the
consistency of the manager. A high value indicates that the manager can generate
higher returns by taking additional risk. For HDFC growth fund information ratio is
53.52% on 5-year basis. An increasing trend is observed on YOY basis.
Sortino Ratio
This ratio does not penalize portfolio manager for upside volatility, and focuses on
returns that are negative or below a certain benchmark. For the fund it is 6.06 on 5year basis. The ratio is ve for FY09 and FY10 while for the remaining period the
ratio cannot be calculated because the standard deviation of downside return is 0.

Holding Based Portfolio Analysis

The fund is heavily invested in Financial, Energy and Information Technology sector.
The key highlights across each sector in which the fund has a major investment are
discussed below.
Energy:
1. With reduction in government subsidy the earnings of companies like
ONGC/OIL are expected to increase. Also, oil marketing companies (OMCs)
are expected to have improved performances owing to deregulation of
diesel prices.
2. As per IDBI capital, as a result of contracting fiscal deficit and strong
economic growth the rupee is expected to strengthen and underrecoveries are expected to fall giving a boost to entire oil & gas sector.
Information Technology:
1. Macro improvement in the US which is indicated by PMI and jobs data is
expected to give a boost to demand.
2. Moderation in margins expected due to INR appreciation and wage hikes.
3. The overall impact is expected to be positive for stocks like TCS and
INFOSYS and HCL Tech. The fund currently has holdings in INFOSYS and
TCS and should go for HCL Tech. also.

Figure 2: IT sector performance

Source: Bloomberg

Financials:
1. A stable currency and a stable government is a positive for the banking
sector.
2. Improvement in GDP and IIP should determine the quantum/pace of
improvement in corporate credit cycle and asset quality. Nomura
estimates softening in total stressed assets thereby giving a positive
indication.

Figure 3: Total stressed assets

3. RBI announcement for regarding easing of CRR, SLR and PSL on long-term
fund raising gives a positive indicator for IDFC and corporate focused
private sector banks with a blend of housing. Edelweiss research predicts
reduction in cost of funds for banks by ~100bps on housing and ~190bps
on infra financing.
Industrials:
1. In capital goods sector the pace of order finalizations have remained low
for 1Q15 and the project awards have declined to lowest levels since
2007.
2. L&T, BHEL & TEXMACO are expected to get a boost based on the
possibility of improvement in private sector ordering and improvement in
core sector.
3. Setting up of REITs type structure for funding infrastructure projects as
announced in budget 2014-15 can help in refinancing of existing high cost
debt with low cost long term capital and attracting international finance.
This could benefit L&T.
4. Government thrust on infrastructure is a positive indicator for cement and
construction industry.
Healthcare:

1. Macro improvement in the US which is indicated by PMI and jobs data is

expected to give a boost to demand.
2. Rapid appreciation of INR has stopped and it has become range-bound
with respect to USD. Appreciation has also been observed in USD against
all currencies which can boost profitability of Indian companies.
3. Indian business can decline with stricter domestic price control regime.
Consumer Staples:
1. Deficient monsoon is likely to adversely affect the sector as low
agricultural production will create supply-side constraints for the
companies.
2. Many of the companies are overvalued with the average sector P/E ratio
being much higher than average.

Figure 4: Sector P/E

Consumer Discretionary:
1. Improvement in economic activity post general election proving to be key
catalyst for demand recovery.
2. Lead indicator of CV industry like freight rates are positive and recent rail fare
hike for freight movement will support road freight rates. This is a positive
indicator for MHCV segment.
3. Extension of excise duty cuts is a positive for the industry.
Overall, the portfolio holdings seems to be bullish and investment can be made
in the fund. Moreover, fund rebalancing can be carried out and some
unproductive stocks can be removed. Some stocks that can be added to the
portfolio based on the firms investment profile can be Axis Bank in Financials

sector, HCL Technologies in Information Technology sector, Dr Reddys

Laboratories in Healthcare sector, Motherson Sumi Systems in Industrials sector,
and Hero Motocorp and Maruti Suzuki India in Consumer Discretionary sector.

Project Analysis.xlsx

References
Bloomberg, 2014. HDFC Growth Fund sector weights, returns. [Online]
Available at: www.bloomberg.com
[Accessed 19 08 2014].
Centrum, 2014. Cement upturn to continue, paints fully valued, Mumbai: s.n.
Centrum, 2014. Slowly stepping out of the problem zone, Mumbai: s.n.
HDFC, 2014. HDFC Growth Fund, profile, portfolio. [Online]
Available at: www.hdfcfund.com
[Accessed 25 08 2014].
IDBI Capital, 2014. Sunny days more to comePositive for Oil PSUs, Mumbai: s.n.
India, N., 2014. CNX100 Stock list and sector weights. [Online]
Available at: www.nseindia.com
[Accessed 19 08 2014].
Motilal Oswal, 2014. CAPITAL GOODS (Order Tracker): Order awards remain muted,
Mumbai: s.n.
Nomura, 2014. India financials: In for the long haul, Mumbai: Nomura.