HDFC NIFTY Growth Sectors 15 ETF: Should You Invest in India’s Fastest-Growing Sectors?

Sep 15, 2022

Listen to HDFC NIFTY Growth Sectors 15 ETF: Should You Invest in India’s Fastest-Growing Sectors?

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Indian economy witnessed a gradual downfall amidst the pandemic; however, there has been a silver lining to it. The post-COVID scenario came up with some potential benefits and paved the way for different sectors which have the potential to flourish in the coming years.

The adoption of digital technological advancements, telemedicine, etc., are all boosting the expansion of the Indian healthcare sector, which is growing as one of the most significant industries. Contrary to other businesses that experience cycles of expansion and contraction, the Fast Moving Consumer Goods (FMCG) sector is safe for long-term investments since its products are always in demand. In addition, the automobile industry is anticipated to grow in the coming years due to the focus on green technology and EV innovations.

According to experts, the Indian economy is expected to be the fastest-growing economy, considering the growth potential of the emerging sectors in the economy. This has led the investor sentiment to invest in these growing sectors. However, investing in a single sector carries high concentration risk, and thus it is advisable to invest across these sectors.

The NIFTY Growth Sector 15 Index comprises of top 15 companies from sectors of market interest and provides you with an overall exposure to the leading sectors of the economy. Investors may consider investing in the NIFTY Growth Sectors 15 Index to generate better risk-adjusted returns.

HDFC Mutual Fund has launched a new scheme targeting to benefit from the growth potential of budding sectors - HDFC NIFTY Growth Sectors 15 ETF. It is an open-ended scheme replicating/tracking NIFTY Growth Sectors 15 Index (TRI).

On the launch of this scheme, Mr Navneet Munot, Managing Director and Chief Executive Officer at HDFC Asset Management Co. Ltd., said, "Smart beta investing is popular globally with assets under management (AUM) rising steadily. Smart Beta ETFs offer one-shot diversification of portfolio at a low cost and is proven tool for investors who seek returns over the long term."

Table 1: Details of HDFC NIFTY Growth Sectors 15 ETF

Type An open-ended scheme replicating/tracking NIFTY Growth Sectors 15 Index (TRI) Category Exchange Traded Fund
Investment Objective The investment objective of the Scheme is to provide investment returns that, before expenses, correspond to the total returns of the Securities as represented by the NIFTY Growth Sectors 15 Index, subject to tracking errors. There is no assurance that the investment objective of the Scheme will be realized.
Min. Investment Rs 500/- and in multiples of Re 1/- thereafter. Face Value Rs 10/- per unit
Entry Load Not Applicable Exit Load Nil
Fund Manager Mr Krishan Kumar Daga
Mr Arun Agarwal
Benchmark Index NIFTY Growth Sectors 15 Index (TRI)
Issue Opens September 09, 2022 Issue Closes September 20, 2022
(Source: Scheme Information Document)
 

The investment strategy for HDFC NIFTY Growth Sectors 15 ETF will be as follows:

HDFC NIFTY Growth Sectors 15 ETF endeavours to mirror the benchmark index, subject to tracking errors. The scheme aims to invest in stocks forming part of the underlying Index in the same ratio as per the index to the extent possible and, to that extent, follows a passive investment strategy.

HDFC NIFTY Growth Sectors 15 ETF: Should You Invest in India’s Fastest-Growing Sectors?
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Since the Scheme is an exchange-traded fund, it will only invest in securities constituting the Underlying Index. However, due to corporate action in companies comprising the index, the Scheme may be allocated/allotted securities which are not part of the index. Such holdings would be rebalanced within 7 Business Days from the date of allotment/listing of such securities.

The scheme's performance may not be commensurate with the performance of the underlying Index on any given day or over any given period. Such variations are commonly referred to as tracking errors. These schemes intend to maintain a low tracking error by aligning the portfolio in line with the Index. The stocks comprising the underlying Index are periodically reviewed by Index Service Provider. The scheme would invest in Constituents of NIFTY Growth Sectors 15 Index; it may also invest in debt & money market instruments in compliance with regulations to meet liquidity and expense requirements.

Under normal circumstances, the asset allocation will be as under:

Table 2: Asset Allocation for HDFC NIFTY Growth Sectors 15 ETF

Instruments Indicative Allocations (% of Net Assets) Risk Profile
Minimum Maximum High/Medium/Low
Securities covered by NIFTY Growth Sectors 15 Index 95 100 Very High
Debt Securities & Money Market Instruments, units of Debt Schemes of Mutual Funds 0 5 Low to Medium
(Source: Scheme Information Document)
 

About the benchmark

The NIFTY Growth Sectors 15 Index is designed to provide investors exposure to liquid stocks from sectors of market interest. The Index comprises of 15 companies listed on the National Stock Exchange of India and on which stock derivatives are available. The index is easily replicable and tradable.

The constituent weights are capped at 15%. At the time of rebalancing of shares/change in index constituents/change in investable weight factors (IWFs), the weightage of the index constituent (wherever applicable) is capped at 15%.

Here's a list of the top 10 constituents by their weightage and sector representation under the index:

(Source: NSE NIFTY Growth Sectors 15 Index)
 

Note that the index will be rebalanced semi-annually in March and September.

Who will manage HDFC NIFTY Growth Sectors 15 ETF?

Mr Krishan Kumar Daga and Mr Arun Agarwal will be the designated fund managers for this scheme.

Mr Krishan Kumar Daga is a B. Com graduate and has over 32 years of experience, of which 13 years in Equity Research and over 14 years in Fund Management. Prior to joining HDFC AMC, he was associated with Reliance Capital Asset Management Company Ltd. as Fund Manager/Head - ETF, Reliance Capital Ltd. as Vice President, and Deutsche Equities as Vice President.

At HDFC Mutual Fund, Mr Daga currently manages HDFC Arbitrage Fund, HDFC Banking ETF, HDFC Equity Savings Fund (Arbitrage Assets), HDFC Gold ETF, HDFC Gold Fund (FOF), HDFC Index Fund - NIFTY 50 Plan, HDFC Index Fund - SENSEX Plan, HDFC Multi-Asset Fund (Gold related instruments and Arbitrage Assets), HDFC NIFTY 50 ETF, HDFC SENSEX ETF, HDFC Nifty 100 ETF, HDFC NIFTY Bank ETF, HDFC Nifty Next 50 ETF, HDFC Nifty 100 Index Fund, HDFC Nifty100 Equal Weight Index Fund, HDFC S&P BSE SENSEX ETF, HDFC NIFTY50 Equal Weight Index Fund, HDFC Developed World Indexes Fund of Funds, and HDFC NIFTY Next 50 Index Fund.

 

Mr Arun Agarwal is a Chartered Accountant and B.com graduate. Collectively he has over 23 years of experience in equity, debt and derivative dealing, fund management, internal audit and treasury operations. Prior to joining HDFC AMC, he was associated with SBI Funds Management Pvt. Ltd. as Assistant Vice President, ICICI Bank Limited as Chief Manager, UTI Asset Management Pvt. Ltd. as Manager and UTI Asset Management Pvt. Ltd. as Assistant Manager.

At HDFC Mutual Fund, Mr Agarwal currently manages, HDFC Arbitrage Fund, HDFC Banking ETF, HDFC Equity Savings Fund (Arbitrage Assets), HDFC Gold ETF, HDFC Gold Fund (FOF), HDFC Index Fund - NIFTY 50 Plan, HDFC Index Fund - SENSEX Plan, HDFC Multi-Asset Fund (Gold related instruments and Arbitrage Assets), HDFC NIFTY 50 ETF, HDFC SENSEX ETF, HDFC Nifty 100 ETF, HDFC NIFTY Bank ETF, HDFC Nifty Next 50 ETF, HDFC Nifty 100 Index Fund, HDFC Nifty100 Equal Weight Index Fund, HDFC S&P BSE SENSEX ETF, HDFC NIFTY50 Equal Weight Index Fund, HDFC Developed World Indexes Fund of Funds, and HDFC NIFTY Next 50 Index Fund.

Fund Outlook - HDFC NIFTY Growth Sectors 15 ETF

HDFC NIFTY Growth Sectors 15 ETF aims to invest in stocks of companies forming a part of the fastest growing sectors by replicating the underlying index and endeavours to generate returns parallel to the benchmark index, subject to tracking errors.

The scheme passively invests in stocks of companies under sectors with high growth potential and offers diversification benefits by investing across market caps. The scheme selects stocks from sectors with high Price/Earnings and Price/Book ratios, which reflect high earnings growth potential.

Historically, the underlying index has generated higher long-term returns than the NIFTY 50 TRI. The scheme provides investors with access to the Growth factor via a diversified portfolio of 15 companies which are market leaders in the fastest-growing sectors of the economy. The fortune of this scheme will depend on the performance of the underlying index.

Although the scheme provides diversification across growing sectors of the economy, it will still be prone to high market risks. In addition, the persistent repercussions of the Russia-Ukraine conflict, spiralling inflation and the RBI's recent announcement to hike policy rates again by 50 basis points to curb demand and control inflation may cause a significant risk to economic growth. The margin of safety appears to be narrow, and the clear direction for the equity market from the current elevated levels is unknown. These factors, among many others, could have a bearing on the underlying ETF's performance and may affect the scheme's portfolio negatively if any of the sectors moves out of favour.

Thus, the scheme is suitable for refined investors who possess a better understanding of entry and exit into various sectors with a high-risk appetite and a long investment horizon of at least 5-7 years to sustain volatile market phases. You should ensure that your investment objective aligns with the respective fund you decide to invest in.

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Warm Regards,
Mitali Dhoke
Jr. Research Analyst



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