Paytm Masterclass DSP AMC

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Thematic / Sectoral
[Title to come] Funds Investing
[Sub-Title to come]
| People | Processes | Performance |
February 2021
Date Strictly for Intended Recipients Only

* DSP India Fund is the Company incorporated in Mauritius, under which ILSF is the corresponding share class
Strictly For Use By Intended Recipients Only

What are Sector / Thematic Finds
Why DSP?
Sector funds focus on one area of the market, known as a sector, by investing in companies that operate
in the fund's chosen sector.
• A sector consists of one line of business that provides the same or similar product.
• Some common sectors include banking, pharma, information technology, real estate, energy, etc.
Thematic funds are equity mutual funds that invest in stocks tied to a theme.
• These funds are more broad-based then sectoral funds, as they pick companies and sectors united
by an idea.
• For instance, an infrastructure theme fund will invest in capital / engineering goods, developers,
cement, power, steel among other sectors
Source: Internal, 22-Feb-2021. The sector(s)/stock(s)/issuer(s) mentioned in this presentation do not constitute any research report/recommendation of the same and may or may not
have any future position in these sector(s)/stock(s)/issuer(s).
Strictly For Use By Intended Recipients Only 2

Let’s talk about a few options
Why DSP?
Banking & Financial Services
Pharma & Healthcare
Metals & Energy
Infrastructure

How have Sectoral Indices performed
RELATIVE PERFORMANCE OF SECTORAL INDICES VS NIFTY 50 INDEX

Why DSP? Nifty
Nifty Pharma Nifty Metals Nifty Energy S&P BSE Capital
Nifty Bank Index Infrastructure
Index Index Index Goods Index
Index
FY20 -11% 3% -23% -6% -1% -15%
FY19 10% -6% -27% 10% -18% -15%
FY18 2% -28% 3% 2% -3% 0%
FY17 14% -24% 44% 21% 2% 7%
FY16 -3% -6% -9% 11% -13% -16%
FY15 18% 41% -34% -28% -2% 18%
FY14 -6% 9% -4% -8% -1% 13%
FY13 4% 12% -34% -7% -19% -17%
FY12 -2% 19% -21% -11% -9% -15%
FY11 13% 3% -23% -6% -20% -18%
FY10 53% 13% 111% -35% -31% 46%
FY9 -1% 12% -17% 10% -5% -16%
FY8 4% -20% 46% 21% -1% 32%
FY7 0% -11% 18% -1% 20% 1%
FY6 -35% -17% -23% -15% 23% 92%
FY5 11% -5% 35% -18% 20% 31%
Source: Bloomberg, Internal, 19-Feb-2021. These figures pertain to performance of the Index and do not in any manner indicate the returns/performance of any mutual fund scheme. It is not
possible to invest directly in an index. Past performance may or may not be sustained in the future and the same should not be used as a basis for comparison with other investments. The
sector(s)/stock(s)/issuer(s) mentioned in this presentation do not constitute any research report/recommendation of the same and may or may not have any future position in these
sector(s)/stock(s)/issuer(s).

Banking & Financials Services Fund
Banks, NBFCs, Life Insurance, General Insurance, Bourses, Clearing Services, Financial
Universe Intermediaries Why DSP?
When economic growth outlook is stable which in turn benefits credit growth
When asset quality trends are stable or improving
When When there is robust credit demand and liquidity is limited in system which gives
should we better pricing power / better lending spreads
When regulatory environment is stable or favorable
enter When valuation levels are below 1 standard deviation of long period average
multiple
When credit demand is moderating and there is creation of excess liquidity which
reduces gross margins
When you When asset quality pressures are rising / expected to rise
should sell When valuations are above 1 standard deviation of long period average multiple
which makes risk reward less favorable from medium term perspective

Banking
18 Month Rolling Returns Relative to NIFTYWhy

50 DSP?
NSEBANK Index
150%
100%
50%
0%
-50%
-100%
NSE BANK Nifty Alpha
Dec-04 to Jul-06 14% 59% -46%
Mar-09 to Oct-10 265% 136% 129%

Pharma & Healthcare
Medicine manufacturers, Diagnostic labs, hospitals, equipment manufacturers

Universe
Healthcare has many sub sectors like domestic formulations, export of generic formulations,
bulk drugs/ APIs, hospitals, medical devices, diagnostics etc which have different drivers.
Importantly most of these sub-segments are not cyclical. A healthcare fund also gives
When exposure to global companies in segments like medical devices, innovative pharmaceutical
products, genome research, etc. where India has typically lagged.
should we
A diversified equity fund may own 5-7% of its assets in the healthcare sector and this would
enter be typically spread across 3-5 stocks. In most cases these stocks would be part of
benchmarks and would possibly be part of the same industry i.e. generics which has the
largest market capitalization within the healthcare sector. However a healthcare focused
fund gives exposure to a wider range of businesses across market caps. As such a healthcare
fund gives better exposure to the healthcare theme. For e.g. in FY15-19 if a diversified fund
would have invested in the US generic focused companies and hence not made much return
in its healthcare investments. A healthcare focused fund would however have invested in
other segments also which would have delivered good returns.
When there is a lot of uncertainty around the economy, generally healthcare proves to be
stable investment as demand is fairly stable and non-cyclical.
The US generics segment is partly cyclical especially for the oral solids part of the business.
The time to get out of this theme is when
When you • one hears about large capex spends by companies (global as well as Indian)
• profits from large products start getting a multiple.
should sell Regulatory actions by Indian government on pricing or by US FDA on facility inspections are
risks which investors need to keep in mind.

Pharma

50 DSP?
NSEPHRM Index
80%
60%
40%
20%
0%
-20%
-40%
-60%
-80%
-100%
NSE Pharma Nifty Alpha
Jun-06 to Jan08 47% 135% -89%
May-09 to Dec-10 94% 36% 58%

Metals & Energy
Universe Why DSP?

Metal & mining, oil & gas (including upstream, downstream & utilities)
When there is low capex in the sector (more focus on the supply side vs demand side)
When commodity prices are low (relative to marginal cost of production), the sector
attracts less capital
When Less capital implies lower supply growth in the next few years, thus, increasing prices
should we and margins over time
enter When fixed asset investments in leading economies start picking up as a % of GDP (for
instance, China)
When global growth and recovery is expected (improving PMI levels)
When demand is supported by transformations like planetary decarbonization (EVs,
green capex, ESG)
When valuations are low relative to past and to broader markets
When high commodity prices (relative to marginal cost of production) have elicited a
When you supply side response. More capex in the sector will lead to overcapacity, and eventually
lower prices and margins.
should sell When industry ROCEs or margins reach their peaks relative to past cycles. Will attract
more capital and eventual supply with a lag.
When leading economies are getting out of capex cycles (low fixed asset investments)
and there are low global growth expectations
When valuations are high relative to past and to broader markets

Metal & Energy

50 DSP?
250%
200%
150%
100%
50%
0%
-50%
-100%
NSEMET Index NSENRG INDEX
NSE Metal/NSE Energy Index Nifty Alpha

Jan-14 to Aug-15 -28%/-59% 38% -28%/-59%
Jun-06 to Jan-08 161%/257% 114% 47%/114%

Infrastructure
Capital / Engineering Goods, Infra Developers / Owners, Oil & Gas, Metals & Mining, Utilities
Universe Why
(basically ex Pharma, IT, FMCG, DSP?
Auto)
Signs of government action: allocations and rollout of large program in infrastructure

• National Infrastructure Pipeline
• Enlarged budget allocations
When
should we Early sings of cyclical upturn
enter • Strong consumer demand trend across sectors
• Increasing capacity utilizations; some early announcements
Build-up of long-term growth driving macro thematic

• Manufacturing sector gains
Overheating of cycle
When you • Second and third rung corporates announce large projects
• Long-term sector leaders start getting cautious
should sell • Stress at margins e.g. negative news on clearances, land acquisition
• Super aggressive bids by players in tenders of various type
Excessive valuations
• Valuation multiple that does not relate to long-term average or fundamentals at all
• Even mid-cap/small-cap companies in sector aim at large capital raise

INFRA & Capital Goods

50 DSP?
200%
150%
100%
50%
0%
-50%
-100%
NSEINFR INDEX BSETCG INDEX
NSE INFRA/BSE Capital Goods Index Nifty Alpha

Aug-11 to Mar-13 -19%/-23% 16% -35%/-40%
Jun-06 to Jan-08 209%/176% 99% 110%/77%

Always Keep In Mind
Limit your exposure to sectoral /thematic funds

Why DSP?
Sector and thematic funds are suitable for those who have an understanding and in-depth knowledge of
that particular sector or theme or advised by an trusted financial advisor
Are cyclical in nature therefore one has to actively monitor. Will have higher volatility vs a diversified fund
(If one sector performs poorly, the fund focused on that sector will do so as well, without any offset from
investments in a sector that is performing well).
For some sectors, global political scenarios / growth is an important variable to monitor
Entry / Exit important – ideally one should enter in a bearish phase and exit when the whole world starts
talking and valuations are high vs history
Don’t go by past returns when you invest in a sector or thematic fund. Instead, take a good look at the
opportunities ahead for that sector or theme.

Why consider investing in Gold?
Gold price vs Equities

1. Diversification of Portfolio – Allocation to Gold provides
diversification to portfolio due to low correlation with Financial Year Gold Bullion Nifty 50 TRI
Equities
2008-09 26.8% -35.4%
2. Store of Value – Gold is often considered as a safe haven, 2009-10 7.3% 75.3%
especially when uncertainty is high and other asset classes
2010-11 27.6% 12.4%
underperform
2011-12 33.1% -8.2%
3. High demand - Gold-backed ETF holdings reached a record
high in 2020 & central banks globally continued to buy gold 2012-13 2.4% 8.7%
amid heightened global volatility 2013-14 -10.8% 19.3%
4. Real rate vs Gold Price – Gold prices are inversely 2014-15 -4.9% 28.3%
proportional to real rates in the economy. Real rate = Nominal 2015-16 10.6% -7.8%
rate – Inflation. Thus if inflation rises, real rate will fall & gold
will tend to outperform 2016-17 -0.6% 20.2%
2017-18 6.5% 11.8%
2018-19 3.8% 16.4%
2019-20 32.7% -25.0%
2020-21 * 8.5% 77.3%
Source – Bloomberg. * Data till 18 Feb 2021

The sector(s)/stock(s)/issuer(s) mentioned in this presentation do not constitute any research report/recommendation of the same and may or may not have any future position in
these sector(s)/stock(s)/issuer(s).
14
Avenues for taking gold exposure
Avenues Key points
Can be in form of gold coins, bars or jewellery
Physical Gold May have challenges like verifying authenticity, cost of holding (storage cost), liquidity at fair
price etc.
Started as an initiative by the Government of India to provide an alternative to owning physical
gold. Scheme is supervised by RBI
Sovereign Gold Bond has tenure of 8 years with lock-in of 5 years
Bond Minimum permissible size is 1 gram of gold
Interest is payable on semi-annual basis based on rate notified by RBI
Traded in secondary market, however have liquidity concern
ETF that invest in gold and are traded in stock markets. Investment is backed by physical gold
Gold ETFs Liquidity may be concern in secondary markets
Demat account necessary to own liquid ETFs
Fund of fund that invest in Gold ETFs; no requirement of demat account
Gold Funds (Fund of
Higher Liquidity compared to Gold ETFs as subscription/redemption directly with AMCs
Fund)
Higher expense ratio compared to Gold ETFs
Mutual fund investing in Gold mining companies whose share prices are directly correlated to
Gold Equity Funds gold prices
High risk product and suitable for well informed professional investors
Gained traction recently which can be bought on various digital platforms
Digital Gold Investment can go as low as Re 1 and can be used for investment purpose
Investment is backed by physical gold
Buying Gold futures contract which are traded on MCX tracking gold prices
Gold Futures Contracts are periodically settled and are risky compared to other investing avenues
The sector(s)/stock(s)/issuer(s) mentioned in this presentation do not constitute any research report/recommendation of Strictly For Use By Intended Recipients Only 15
the same and may or may not have any future position in these sector(s)/stock(s)/issuer(s).
Disclaimer
This presentation / note is for information purposes only. It should not be construed as investment advice to any party. In this material DSP Investment Managers Pvt. Ltd. (the
AMC) has used information that is publicly available, including information developed in-house. Information gathered and used in this material is believed to be from reliable
sources. While utmost care has been exercised while preparing this document, the AMC nor any person connected does not warrant the completeness or accuracy of the
information and disclaims all liabilities, losses and damages arising out of the use of this information. The recipient(s) before acting on any information herein should make
his/their own investigation and seek appropriate professional advice. The statements contained herein may include statements of future expectations and other forward looking
statements that are based on prevailing market conditions / various other factors 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. Past performance may or may not be sustained in the future and should not be
used as a basis for comparison with other investments. The sector(s)/stock(s)/issuer(s) mentioned in this presentation do not constitute any research report/recommendation of
the same and the schemes of DSP mutual fund may or may not have any future position in these sector(s)/stock(s)/issuer(s).
The figures pertain to performance of the index and do not in any manner indicate the returns/performance of the Scheme. It is not possible to invest directly in an index. All
opinions, figures, charts/graphs and data included in this presentation are as on date and are subject to change without notice. For complete details on investment objective,
investment strategy, asset allocation, scheme specific risk factors and more details, please read the Scheme Information Document, Statement of Additional Information and Key
Information Memorandum of respective scheme available on ISC of AMC and also available on www.dspim.com. There is no assurance of any returns/capital protection/capital
guarantee to the investors in above mentioned Schemes. The presentation indicates the strategy/investment approach currently followed by the above mentioned Schemes
and the same may change in future depending on market conditions and other factors. The portfolio of the above schemes is subject to changes within the provisions of the
Scheme Information document of the scheme.
For index disclaimer click here. An investor, by subscribing or purchasing an interest in the Product(s), will be regarded as having acknowledged, understood and accepted the
disclaimer referred to in Clauses above and will be bound by it.
Mutual Fund investments are subject to market risks, read all scheme related documents carefully.

#INVESTFOR
INVESTFORGOOD
FORGOOD
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| People | Processes | Performance |

Date Strictly for Intended Recipients Only

Strictly For Use By Intended Recipients Only

Strictly For Use By Intended Recipients Only 2

Pharma & Healthcare

Metals & Energy

Strictly For Use By Intended Recipients Only 3

RELATIVE PERFORMANCE OF SECTORAL INDICES VS NIFTY 50 INDEX

Strictly For Use By Intended Recipients Only 4

Strictly For Use By Intended Recipients Only 5

18 Month Rolling Returns Relative to NIFTYWhy

NSE BANK Nifty Alpha

Dec-04 to Jul-06 14% 59% -46%

Mar-09 to Oct-10 265% 136% 129%

Strictly For Use By Intended Recipients Only 6

Medicine manufacturers, Diagnostic labs, hospitals, equipment manufacturers

Strictly For Use By Intended Recipients Only 7

18 Month Rolling Returns Relative to NIFTYWhy

NSE Pharma Nifty Alpha

Jun-06 to Jan08 47% 135% -89%

May-09 to Dec-10 94% 36% 58%

Strictly For Use By Intended Recipients Only 8

Universe Why DSP?

Strictly For Use By Intended Recipients Only 9

18 Month Rolling Returns Relative to NIFTYWhy

NSEMET Index NSENRG INDEX

NSE Metal/NSE Energy Index Nifty Alpha

Strictly For Use By Intended Recipients Only 10

Signs of government action: allocations and rollout of large program in infrastructure

Build-up of long-term growth driving macro thematic

Strictly For Use By Intended Recipients Only 11

18 Month Rolling Returns Relative to NIFTYWhy

NSEINFR INDEX BSETCG INDEX

NSE INFRA/BSE Capital Goods Index Nifty Alpha

Strictly For Use By Intended Recipients Only 12

Limit your exposure to sectoral /thematic funds

Strictly For Use By Intended Recipients Only 13

Gold price vs Equities

2017-18 6.5% 11.8%

2018-19 3.8% 16.4%

2019-20 32.7% -25.0%

2020-21 * 8.5% 77.3%

Source – Bloomberg. * Data till 18 Feb 2021

Strictly For Use By Intended Recipients Only 16

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