HDFC Credit Risk Debt Fund

Transcription

1 HDFC Credit Risk Debt Fund (An open ended debt scheme predominantly investing in AA and below rated corporate bonds (excluding AA+ rated corporate bonds)). A Disciplined Approach to Credit This product is suitable for investors who are seeking*: Income over short to medium term. to generate income/capital appreciation by investing predominantly in AA and below rated corporate debt (excluding AA+ rated corporate bonds) Riskometer * Investors should consult their financial advisers if in doubt about whether the product is suitable for them. Oct 2018

2 Recent stress in NBFC sector triggered by IL&FS default Reasons for financial stress High proportion of debt funding long term assets & equity investments Asset liability mismatch, increased dependence on refinancing Gross borrowings of IL&FS stood at INR 910 bn (as of end-mar 18) Of this, INR 600 to 650 bn is in project SPVs and serviced largely through project flows (refer interview of Hari Sankaran, Vice Chairman and MD of IL&FS in Mint dtd 1 st Oct 18) Total Debt at risk, thus, is near INR 300 bn, i.e. 0.3% of the total bank credit, which is not material. Since the debt of IL&FS Group is widely held across HNIs, Insurance, Provident Funds, banks etc., it should not lead to a systemic issue Source: Various publicly available information ; IL&FS - Infrastructure Leasing & Financial Services Limited 2

3 Build-up of risks in NBFC Sector Rapid growth in NBFCs asset book over past 3 years ~15% CAGR NBFCs share in total credit has increased to 21% in FY18 from 18% in FY14 Banks exposure to NBFCs/HFCs has also increased to 13.8% in FY18 from 11.7% in FY14 Growth in retail asset book coincides with rise in Household financial liabilities Net financial savings (as % of GDP) fallen to 7.2% in FY18 from 8.1% in FY16, despite stable gross savings Sharp increase in share of CPs in the borrowing mix of NBFCs from 4.2% in FY14 to 12.6% in Aug18 leading to ALM mismatch concerns Source: Nomura, Global Markets Research, Sept 2018, RBI Stocks/Sectors referred in the presentation are illustrative and should not be construed as an investment advice or a research report or a recommended by HDFC Mutual Fund / AMC. The Fund may or may not have any present or future positions in these sectors. HDFC Mutual Fund/AMC is not guaranteeing any returns on investments made in the Scheme(s). The data/statistics are given to explain general market trends in the securities market, it should not be construed as any research report/research recommendation 3

4 Sharp rise in spreads for NBFCs in Sep 18 Recent default by an NBFC raised concerns over other NBFCs refinancing capabilities Credit spread widen significantly for NBFCs Average AAA Spread Average AA Spread Source: Daily valuation provided by ICRA/CRISIL; Bloomberg AAA Average spread is average spread of 10 large AAA rated NBFCs 3 Yr. bond yields over 3 Yr benchmark Gsec AA Average spread is average spread of 5 large AA rated NBFCs 3 Yr. bond yields over 3 Yr benchmark Gsec 4

5 Our Investment Philosophy for Fixed Income Fixed income investment philosophy is focussed on credit quality Philosophy of SLR, generally prioritized in that order Safety Superior credit quality companies with low probability of default Liquidity Endeavour to invest in securities with better liquidity Returns Better risk reward ratio Even in the best of credit environments, our endeavour is not to take undue credit risk, even at cost of marginally lower Yield To Maturity (YTM). Source: Internal 5

6 Key Elements of Credit Risk Assessment Framework Emphasis on Four C s of Credit Character of Management Capacity to Pay Collateral pledged to secure debt Covenants of debt Investment Limit Setting through a Credit Scoring Model which factors Parentage, Financials, Rating & Outlook Issuer level limits (% of scheme AUM) are function of credit score better the score, higher the limits (Within the permitted regulatory limits) Cumulative absolute exposure limit across fund house for each issuer and business group List of approved issuers & their exposure limits are reviewed periodically 6

7 Major Credit Stress cases / downgrades in MF Industry Month of downgrade Company MF Industry Exposure (INR Crs) No. of MFs with exposures (including HDFC MF, wherever applicable) HDFC MF Exposure (INR Crs) Jun-12 Deccan Chronicle Group NIL Aug-15 Amtek Auto Limited NIL Dec-15 Jindal Steel & Power - Group 2,640 3 Oct-16 Ballarpur (BILT) NIL Apr-17 Reliance Comm. Group NIL May-17 IDBI Bank 1, * Oct-17 Religare Group 1,269 6 NIL Dec-17 Jana Small Finance Bank 1, * Jul-18 Sintex Group NIL Aug-18 Reliance Infrastructure NIL Sep-18 IL&FS Group (Downgraded) 3, NIL Source: ICRA MFI Explorer NIL With the focus on high credit quality, HDFC MF has largely avoided above credit stress cases * In both the cases, the coupons/principal payments were fully realized Historical indicators are no guarantee of future results 7

8 HDFC Credit Risk Debt Fund Positioning 8

9 HDFC Credit Risk Debt Fund - Diversification Across Sectors For complete portfolio details refer Portfolio details provided as on Sept 30, Portfolio holdings are as a percentage of total portfolio holdings as per AMFI Industry Classification 9

10 HDFC Credit Risk Debt Fund - A Well Diversified Portfolio Across Individual Credits (% top 10 non-aaa individual exposures) Sep Vedanta Ltd. HPCL-Mittal Energy Ltd TATA International Ltd. The Tata Power Company Ltd. Tata Steel Ltd. Talwandi Sabo Power Ltd Adani Transmission Ltd Simplex Infrastructures Ltd Punjab National Bank Nuvoco Vistas Corporation Ltd Diversification across Business Groups - % top 10 non-aaa Group exposures Tata Group Sep Tata Sons Group Tata Power Group Tata Steel Group Tata Motors Group Vedanta Greenko Adani HPCL Across different rating categories Sep AAA & Cash & Cash Equivalents AA+ AA AA- A+ A A- Unrated For complete portfolio details refer Portfolio details provided as Sept 30, Portfolio holdings are as a percentage of total portfolio holdings. Debt instruments referred above are not recommended by HDFC Mutual Fund/AMC. The Fund may or may not have any present or future positions in these instruments. 10

11 Exposure to lower rated papers v/s others 70 % Exposure of AUM to A Category and below/unrated papers CRISIL's comparative Cumulative Default Rates (CDR) for AA and A rated issuer across tenor 5.0% % 3.95% % % 1.96% HDFC CRF MF2 CRF MF1 CRF MF3 CRF MF4 CRF 1.0% 0.0% 0.69% 0.47% 0.27% 0.04% 1 Year 2 Year 3 Year CRISIL AA CRISIL A Note: As per SEBI, Credit Risk Funds shall invest mminimum 65% of total assets in AA* and below rated corporate bonds [*excludes AA+ rated corporate bonds] Thus, the probability of default is higher for lower rated papers Top 5 Credit Risk Funds, including HDFC (in terms of AUM) Sept 2018 portfolios Source: Sept 2018 Portfolios, MFI explorer, HDFC CRF HDFC Credit Risk Debt Fund Source: CRISIL Annual Default and Ratings Transition Study available on (Latest available report). Issuer default data over the period of 1988 t to

12 Exposure to relatively riskier^ segments 60 % Exposure (RE+MFI+LAS+A rated corp) HDFC CRF MF1 CRF MF2 CRF MF3CRF MF4 CRF RE: Real Estate, MFI: Micro Finance Institutions, LAS: Loan against shares (NCD secured against shares), A rated corp: Corporate with Credit rating in A Category or lower Top 5 Credit Risk Funds, including HDFC, (in terms of AUM) as per Sept 2018 portfolios Source : Sept 2018 portfolios, HDFC MF Internal Classification. ^Riskier as per HDFC MF Research Note: As per SEBI, Credit Risk Funds shall invest mminimum 65% of total assets in AA* and below rated corporate bonds [*excludes AA+ rated corporate bonds]

13 HDFC Credit Risk Debt Fund What impacted returns? Significant rise in yields of corporate bonds over last one year Conservative positioning with high allocation to AAAs Medium duration - slightly longer than others in this category 13

14 Summary HDFC Credit Risk Debt Fund Credit Quality continues to be central focus of our investment philosophy With our credit risk assessment framework we have been able to avoid any major credit stress/event on our portfolio High yields available on good quality credits offers attractive risk reward trade off A well diversified portfolio ideally positioned to take advantage of current environment Returns are not assured / guaranteed. - HDFC Mutual Fund/AMC is not guaranteeing any returns on investments made in this Fund. In view of the individual circumstances and risk profile, each investor is advised to consult his / her professional advisor before making a decision to invest in the Scheme. 14

15 Portfolio Statistics: Portfolio Classification by Issuer Rating Class (%) AAA & Equivalent, A1+ & Equivalent AA Portfolio Classification by Asset Class(%) AA/AA A+ & Below Sovereign 0.28 Cash, Cash Equivalents and Net Current Assets AUM as on September 30 th 2018 (In Rs. Cr.) , SDL CD/CP Credit Exposure Cash,Cash Equivalents and Net Current Assets Average Maturity Macaulay Duration Modified Duration Yield To Maturity 2.54 years 2.19 years 2.02 years 9.70% For complete portfolio details refer Portfolio details provided as on September 30, Based on long term rating. 15

16 Fund Facts Type of Scheme Inception Date (Date of allotment) Investment Objective Fund Manager $ Investment Plan Investment Options Minimum Application Amount. (Under Each Plan/Option) Load Structure An open ended debt scheme predominantly investing in AA and below rated corporate bonds (excluding AA+ rated corporate bonds). March 25 th 2014 To generate income/capital appreciation by investing predominantly in AA and below rated corporate debt. There is no assurance that the investment objective of the Scheme will be realized. Shobhit Mehrotra Regular Plan & Direct Plan Under Each Plan: Growth & Dividend. The Dividend Option offers Normal Dividend option and quarterly dividend option with Dividend Payout and Reinvestment facility Purchase: Rs. 5,000 and any amount thereafter Additional Purchase: Rs. 1,000 and any amount thereafter Entry Load: Not Applicable. Upfront commission shall be paid directly by the investor to the ARN Holder (AMFI registered Distributor) based on the investors assessment of various factors including the service rendered by the ARN Holder. Exit Load: In respect of each purchase / switch-in of Units, 15% of the units ( the limit ) may be redeemed without any exit Load from the date of allotment. Any redemption in excess of the above limit shall be subject to the following exit load: In respect of each purchase / switch-in of Units, an Exit Load of 1.00% is payable if Units are redeemed / switched-out within 12 months from the date of allotment. In respect of each purchase / switch-in of Units, an Exit Load of 0.50% is payable if Units are redeemed / switched-out after 12 months but within 18 months from the date of allotment. No Exit Load is payable if Units are redeemed / switched out after 18 months from the date of allotment. Benchmark Additional Benchmark CRISIL Short Term Bond Fund Index CRISIL 10 Year GILT Index $ Dedicated Fund Manager for Overseas Investments: Mr Rakesh Vyas For further details, please refer to the Scheme Information Document. 16

17 Asset Allocation Under normal circumstances, the asset allocation of the Scheme s portfolio will be as follows: Types of Instruments Minimum Allocation (% of total Assets) Maximum Allocation (% of total Assets) Risk Profile of the instrument Debt (including securitised debt) and Money Market Instruments # Upto 100 Medium to High Units issued by REITs and InvITs 0 10 Medium to High #Minimum 65% of the total assets shall be invested in AA* and below rated corporate debt. (*excludes AA+ rated) The scheme may invest in the schemes of Mutual Funds in accordance with the applicable extant SEBI (Mutual Funds) Regulations as amended from time to time. The Scheme may invest upto a maximum 75% of the total assets in Foreign Debt Securities. The Scheme may invest upto 100% of its total assets in Derivatives. For further details, please refer the Scheme Information Document. 17

18 Disclaimer & Risk Factors This presentation dated 24 th October, 2018 has been prepared by HDFC Asset Management Company Limited (HDFC AMC) based on internal data, publicly available information and other sources believed to be reliable. Any calculations made are approximations, meant as guidelines only, which you must confirm before relying on them. The information contained in this document is for general purposes only. The document is given in summary form and does not purport to be complete. The document does not have regard to specific investment objectives, financial situation and the particular needs of any specific person who may receive this document. The information/ data herein alone are not sufficient and should not be used for the development or implementation of an investment strategy. The statements contained herein are based on our current views 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 future. Stocks/Sectors referred in the presentation are illustrative and should not be construed as an investment advice or a research report or a recommended by HDFC Mutual Fund / AMC. The Fund may or may not have any present or future positions in these sectors. HDFC Mutual Fund/AMC is not guaranteeing any returns on investments made in the Scheme(s). The data/statistics are given to explain general market trends in the securities market, it should not be construed as any research report/research recommendation. Neither HDFC AMC and HDFC Mutual Fund nor any person connected with them, accepts any liability arising from the use of this document. The recipient(s) before acting on any information herein should make his/her/their own investigation and seek appropriate professional advice and shall alone be fully responsible / liable for any decision taken on the basis of information contained herein. Mutual fund investments are subject to market risks, read all scheme related documents carefully. 18

19 Thank You 19