Sundaram Select Small Cap Series V

Transcription

1 Sundaram Select Small Cap Series V A close-ended equity scheme NFO Opens: June 5, 2017 NFO Closes: June 19, 2017

2 SUNDARAM SELECT SMALL CAP SERIES V FUND DETAILS A four year close-ended Equity Scheme A stock diversified portfolio of growth oriented reasonably valued small caps. Small caps are defined as companies ranked between 101 and 300 by market capitalisation on the NSE (sorting the stocks by market cap in descending order) As of April 30, 2017, small caps were those with a market capitalization of greater than Rs 5,842 crore and lower than Rs 24,007 crore Scheme opens for subscription on 05/06/2017 and will close on 19/06/2017 Benchmark S&P BSE Small Cap Index Fund Manager - S Krishnakumar 2 1

3 OPPORTUNITIES IN THE SMALL CAP SPACE Emerging businesses in sectors like: Consumer discretionary: This broadly includes auto & auto ancillaries, lifestyle, branded garments, retail, hospitality and retail financials. In the long term, driven by structural shift in consumption patterns led by increased disposable income and increased choice. In the short term, driven by implementation of the Central Pay Commission recommendation. Rural Thematic Agri-inputs: In India, penetration of farm inputs remains low compared to global usage. With more money and more information in the hands of rural India, we expect an upswing in demand for farm inputs. Better awareness, incentive to improve yields should drive up demand for pesticides, fertilizers and other farm inputs. Industrial, Engineering & Infra: Investment in these sectors is based on the expected revival in economic growth. Financials: Financial inclusion is one theme which has got the biggest impetus through demonetisation. With demonetisation, we believe there is a structural change which should systematically bring down the financing cost as well as channelize savings into banking system compared to physical savings earlier. Select Services: The last decade has seen India grow in the services delivery value chain. Growth in the value chain is expected to extend further into many more segments like healthcare, Fitness, tourism & hospitality, transportation & Logistics, education, Staffing, Wealth management, Media, Retail, apparels and aviation 3

4 CASE FOR SMALL CAPS 4

5 WHY SMALL CAPS NOW The shift to a digital economy combined with the roll out of GST will pave the way for a sustained period of economic growth. The shift from the unorganised to the organised sector due to GST will disproportionately favour small companies. Continuing structural change to the economy will herald the arrival of new industries i.e. entertainment; healthcare etc., which most likely will be by small cap companies 5

6 THE SMALL CAP ADVANTAGE Interest rates over the next 2 years most likely to trend down which will be favorable to Small cap companies Under Invested, Under Researched segment offering potential for significant returns Small Cap Reasonable valuations under assumption of revival in economic growth and improvement in earnings. + Sundaram AMC s proven in-house research capabilities in the Mid, Small and Microcap categories Close ended nature of fund enables taking a long term view Advantage Buy-and-Hold approach to enable alpha generation during periods of strong economic expansion. Strong Research Team experienced in identifying tomorrow s winners 6

7 MANY MEGA CAPS HAVE STARTED AS SMALL CAPS India, being a land of entrepreneurs, provides opportunities for young people to build on their dreams Market opportunity is small in the starting phase and hence not meaningful for larger players Companies go through a significant evolution process (regulatory and otherwise) which requires entrepreneurs to be nimble footed Over time, businesses move from unorganized to organized segment (e.g., retail, multiplexes, fashion) Witness large expansion in sales and profit Enter the radar of institutional owners and price discovery happens As these new business are established and scaled up meaningfully, they: Become valuable acquisition targets 7

8 WIDENING CHOICE: CAP-CURVE BASED TRENDS ACROSS NSE & BSE Category Mar-04 Mar-07 Mar-10 Mar-13 Mar-17 Large cap 8,642 21,084 37,642 39,843 66,582 Mid cap 1,377 4,266 8,963 9,032 17,031 Small cap 1,763 8,063 15,551 15,280 36,162 Total Mcap 11,782 33,414 62,157 64,155 1,19,775 Share of Small caps (%) Investment opportunities in small cap space has expanded and will continue to expand Source: In-house Computation 8

9 SMALL CAP FUNDS HAVE OUTPERFORMED OVER VARIOUS TIME PERIODS These are the category averages of Large, Mid and Small cap funds Performance data as on May 25, 2017 Data Source: Value Research Past performance may or may not be sustained in the future 9

10 SMALL AND MICROS CAP PICKS WHICH BECAME MULTI BAGGERS Notes - Stock Name Entry Price (Rs) Selling Price (Rs) CMP (Rs) Return (x) V Guard Amara Raja Hitachi Home SRF Fag Bearings Returns calculated on absolute basis (times "x"). 2. We still hold some of the above stocks. The sales reflect partial profit booking. 3. Names have been taken across schemes Source: In-house Computation 10

11 INDIAN ECONOMY IS SEEING GROWTH IN BULLISH ECONOMIC PHASES, SMALL & MIDCAPS OUTPERFORM LARGE CAPS BSE Mid-cap and Small-cap movement against the Sensex In the last economic upturn between FY 03 and FY 08 : large caps appreciated 559% mid caps appreciated by 933% small caps appreciated by 1427% During the current bull market (from Oct 14 to Feb 17) the numbers are 44%, 137% and 155% respectively. Potential for further appreciation from current levels. Phase 1 Phase 2 Phase 3 Begin End % Returns Begin End % Returns Begin End % Returns Apr-03 Jan-08 Jan-08 Oct-13 Oct-13 May-17 BSE Sensex 3,168 20, ,873 21, ,165 30, BSE Midcap Index 950 9, ,817 6, ,107 14, BSE Small Cap Index ,516 1,427 13,516 5, ,896 15, Source : Bloomberg, Sundaram Asset Management. Data as of May 22,

12 INDIA EMERGING STRONGER THAN BEFORE 12

13 CASE FOR INVESTING IN EQUITIES Economic fundamentals have improved sharply since FY 14 - Fiscal deficit down, GDP higher Economy at an inflection point and positioned to move into a higher growth trajectory over the next 5 years on the back of reforms GST / Demonetisation / push to digital / agricultural reforms / infra push etc. Inflation under control and down significantly from 10% in FY 14 to 4.5% in FY 17- likely to be sustained at these lower levels Sustained lower inflation will channelize savings and provide capital for investments Investments in equity mutual funds hence poised to see significant growth Forward Valuations reasonable considering growth potential 13

14 RURAL CONSUMPTION IMPROVING FROM MULTI-YEAR LOWS A game-changing crop insurance popular among farmers Premium: 2% for food grains and 5% for comm.crops Claims to be settled within 25 days 50% cropped area covered in 5 years Govt. allocation for relief near doubles to Rs.90bn. Real Agricultural GDP Good monsoons have led to a sharp increase in agricultural GDP Ministry of Rural development (Rs.Bn.) Rural rejuvenation and government spends Reforms Set To Transform Indian Agriculture Farmer access to enam 585 mandis online by Mar.'18 Freedom from local cartels Transparent price discovery 14

15 URBAN CONSUMPTION TO BE SUPPORTED BY GOVERNMENT SPENDS 7 th pay commission to drive urban consumption 7PC to add $10-12bn. to urban consumption 4.2mn. central govt. employees and 5.2mn. pensioners 55bps consumption boost and 30bps growth push Government focus on employment generation Package for textile & apparel sector employment Rs.6,000 cr. for the largest employment generator Affordable housing, Roads and drinking water to change the urban landscape 100 Smart cities bring about lifestyle changes AMRUT focus on water supply, sewerage and transport The above three would see an outlay of Rs.3 tr (2.5% GDP) Amrut & Smart cities would cover 80% of urban population Lowering of lending rates a powerful consumption booster Leading banks have started lowering their rates Interest costs could drop by 100bps over the next 1 year This is good news for housing and construction A big boost for consumer loan demand: 2W, durables 15

16 Jun-10 Dec-10 Jun-11 Dec-11 Jun-12 Dec-12 Jun-13 Dec-13 Jun-14 Dec-14 Jun-15 Dec-15 Jun-16 Dec-16 GROWTH MOMENTUM IS SET TO SEE A PICKUP FROM HERE India GDP (yoy %) 10 Old Series-Proj. Old Series New Series The demonetisation move has barely had an impact on headline GDP growth Along side agriculture, Industry has seen a significant pickup in growth contribution However, projecting the old GDP series, growth is more firm and stable Source : CMIE, Sundaram Asset Management 16

17 FY12 FY13 FY14 FY15 FY16 FY17 RE FY18 BE GOVERNMENT EXPENDITURE SEES A SHIFT BACK TO INVESTMENT Capital and revenue expenditure growth (%YoY) Revenue expenditure Capital expenditure The budget has seen a shift back to capital expenditure from revenue Of the total expenditure growth of 6%, capex growth is 11% and revenue at 6% Rural and social sector remains the focus area of the budget Sources : CMIE, Sundaram Asset Management 17

18 THE CYCLE HAS SHIFTED TO VIRTUOUS Vicious cycle Virtuous cycle Higher Inflation Lower Inflation Supply Constraints Higher interest rates Better Supply Response Lower interest rates No further Investment Depressed Demand Higher Investment Higher Demand Lower Capacity Utilisation Better Capacity Utilisation 18

19 GST- A SIGNIFICANT INDIRECT TAX REFORM What's in it for businesses? - Easy compliance due to a robust IT system - Tax uniformity - Minimal cascading effect of taxes (tax on tax) - Seamless flow of input tax credits in the value chain - Improved competitiveness - Lower logistic costs What's in it for governments? - Simplified tax regime, becomes easy to administer - Greater control on leakage due to robust IT infrastructure - Widening of tax net - Reduced cost of collection and increased efficiency What's in it for consumers? - Transparent taxes with no hidden costs - Potential decline in indirect tax outgo Supply chain efficiencies Reduction of inter-state barriers Widening of the tax base 19

20 INDIA MACRO MOMENTUM STRONGER THAN BEFORE FY14 FY16 FY17E FY18E GDP growth (%) CPI Inflation (%) CAD (% of GDP) Fiscal Deficit (% of GDP) year yield y/e (%) Currency rank * 19/24 4/24 13/24 5/24 * The currency rank relates to Dec. 13, 14, 15, 16 # YTD 20

21 Apr-00 Apr-01 Apr-02 Apr-03 Apr-04 Apr-05 Apr-06 Apr-07 Apr-08 Apr-09 Apr-10 Apr-11 Apr-12 Apr-13 Apr-14 Apr-15 Apr-16 Apr-17 FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17E FY18E FY19E MARKETS TO DELIVER DOUBLE DIGIT EARNINGS GROWTH Sensex EPS growth trend 2500 FY93-15: 13% CAGR 2000 FY16-19E: 13% CAGR 1, FY01-08: 21% CAGR FY08-16: 6% CAGR 1,024 1,120 1,181 1,337 1,356 1,324 1,345 1, Year Avg: 17.2x 18.8 Source : Motilal Oswal, Sundaram Asset Management 21

22 EQUITIES ARE POISED TO BENEFIT Economic Recovery Higher Revenues Better Margins Operating Leverage Higher Overall Profits Lower Inflation Rate Lower Interest Rates Lower Interest Cost Financial Leverage 22

23 Disclaimer General Disclaimer: This document is issued by Sundaram Asset Management; an investment manager registered with the Securities and Exchange Board of India in India and is produced for information purposes only. It is not a prospectus, scheme information document, offer d ocument, offer and solicitation, to name a few, to buy any securities or other investment. Information and opinion contained in this document are published for the assistance of the recipient only; they are not to be relied upon as authoritative or taken as a substitution for exercise of judgment by any recipient. They are subject to change without any notice and not intended to provide the sole basis of any evaluation of the instrument discussed or offer to buy. It is n either a solicitation to sell nor shall it form the basis of or be relied upon in connection with any contract or commitment whatsoever or be taken as investment advic e. The information and opinions contained in this communication have been obtained from sources that Sundaram Asset Management believes to be reliable; no r epresentation or warranty, express or implied, is made that such information is accurate or complete and it should not be relied upon as such. Sundaram Asset Management neither guarantees its accuracy and/or completeness nor does it guarantee to update the in formation from time to time. This communi cation is for private circulation only and for the exclusive and confidential use of the intended recipient(s) only. Any other distribution, use or reproductio n of this communication in its entirety or any part thereof is unauthorized and strictly prohibited. By accepting this document you agree to be bound by the foregoin g limitations. This communication is for general information only without regard to specific objectives, financial situations and needs of any particular perso n who may receive it and Sundaram Asset Management is not soliciting any action based on this document. Sundaram Asset Management in the discharge of its funct ions, may use any of the data presented in this document for its decision-making purpose and is not bound to disclose the same. Copies of the Statement of Additional Information, Scheme Information Document and application form with key information memorandum may be obtained from the offices of Sundara m Mutual offices and its authorized distributors or downloaded from For scheme specific risk factors, asset allocation, load structure, fund facts and taxation aspects please refer scheme information documents available online and at branches/investor Service Centres; also a t Statutory: Mutual Fund: Sundaram Mutual Fund is a trust under Indian Trusts Act, 1882 Sponsors. Liability for sponsors is limited to 1 lakh. Sponsors: Sundaram Finance. Investment Manager: Sundaram Asset Management Company. Trustee: Sundaram Trustee Company. Mutual Fund Investments are subject to market risks, read all scheme related documents carefully Past performance may or may not be sustained in the future