HDFC Equity Fund: Caution Ahead?
Oct 31, 2019

Author: Divya Grover

HDFC Equity Fund: Caution Ahead
(Image source: photo created by snowing

Equity market in the recent past has been taking investors on a roller coaster ride -- fluctuating between thrilling highs and dangerous lows. During such uncertain time, a multi-cap approach that has the flexibility to shift its portfolio in line with changing market conditions can prove to be a worthy bet for investors.

HDFC Equity Fund is one such multi cap fund that aims to generate long-term capital appreciation by investing predominantly in equity and equity related instruments.

Launched in January 1995, the fund's asset size is among the largest in the category at Rs 22,491 crore. It is managed by ace fund manager Mr Prashant Jain, while Mr Amar Kalkundrikar is the co-fund manager looking into the overseas equities in the portfolio.

Graph 1: Growth of Rs 10,000 if invested in HDFC Equity Fund 5 years ago

Over the last 5 years, HDFC Equity Fund has performed like an ordinary fund, with multiple bouts of underperformance. Had you invested Rs 10,000 in HDFC Equity Fund five years back on October 29, 2014 it would now be worth Rs 15,119 (calculated on October 29, 2019). This translates into compounded annualised growth rate of 8.62%. In comparison, a simultaneous investment of Rs 10,000 in its benchmark Nifty 500 - TRI would have grown to Rs 15,637 (a CAGR of 9.35%). As we can see in the chart alongside, the fund has failed to generate lead over the benchmark in the last 5 years.

Graph 1: Growth of Rs 10,000 if invested in HDFC Equity Fund 5 years ago
Data as on October 29, 2019
(Source: ACE MF)

Graph 2: HDFC Equity Fund year-on-year performance

Graph 2: HDFC Equity Fund year-on-year performance
*YTD as on October 29, 2019
(Source: ACE MF)

The year-on-year performance comparison of HDFC Equity Fund vis-à-vis its benchmark Nifty 500 - TRI shows that the fund managed to outperform the index in just 4 out of last 10 calendar years. The fund’s performance was nearly in line with the benchmark in CY 2011, CY 2012 and CY 2017. In CY 2018 the fund struggled to limit the downside and trailed the benchmark by a significant margin. It has underperformed the benchmark in the current year as well.

Table: HDFC Equity Fund performance vis-a-vis category peers

Scheme Name Corpus (Cr.) 1-year (%) 2-year (%) 3-year (%) 5-year (%) Std Dev Sharpe
Kotak Standard Multicap Fund 26,991 4.61 10.00 14.72 17.56 13.13 0.08
JM Multicap Fund 139 1.25 7.45 14.66 15.84 14.22 0.09
Edelweiss Multi-Cap Fund 456 0.94 11.35 14.19 NA 14.29 0.08
HDFC Equity Fund 22,491 4.22 9.57 14.12 13.48 15.56 0.04
Principal Multi Cap Growth Fund 847 -3.94 7.80 13.74 14.79 15.39 0.02
Aditya Birla SL Equity Fund 11,247 0.00 6.89 13.57 16.37 13.61 0.00
Canara Rob Equity Diver Fund 1,438 5.11 11.60 13.53 12.62 13.19 0.09
Motilal Oswal Multicap 35 Fund 13,235 -2.87 6.44 13.41 17.57 15.07 0.04
Parag Parikh Long Term Equity Fund 2,205 3.75 11.57 13.01 14.95 8.97 0.13
SBI Magnum Multicap Fund 8,073 1.70 8.97 12.88 17.32 13.26 0.06
DSP Equity Fund 2,786 1.51 8.31 12.53 14.09 15.40 0.06
ICICI Pru Multicap Fund 4,253 2.95 8.61 12.41 15.06 13.07 -0.01
Quant Active Fund 8 0.32 9.96 11.35 16.11 13.78 0.03
UTI Equity Fund 9,536 2.75 10.49 11.30 13.10 13.42 0.04
BNP Paribas Multi Cap Fund 706 -1.85 6.32 11.27 14.71 14.13 0.05
Nippon India Multi Cap Fund 10,021 2.69 9.75 11.04 13.22 16.38 0.02
PGIM India Diversified Equity Fund 118 -0.32 6.81 10.56 NA 14.23 0.02
Invesco India Multicap Fund 905 -6.73 5.58 10.55 16.60 15.97 0.00
L&T Equity Fund 2,643 -2.34 6.47 10.37 12.72 13.02 0.00
HSBC Multi Cap Equity Fund 441 -5.08 4.60 9.60 12.53 16.31 -0.03
NIFTY 500 - TRI 0.78 8.88 12.37 12.24 13.50 0.04
Returns are on a rolling basis and in %, calculated using Direct Plan - Growth option. Those depicted over 1-Yr are compounded annualised.
Data as on October 29, 2019
(Source: ACE MF)

*Please note, this table only represents the best performing funds based solely on past returns and is NOT a recommendation. Mutual Fund investments are subject to market risks. Read all scheme related documents carefully. Past performance is not an indicator for future returns. The percentage returns shown are only for indicative purposes.

Although HDFC Equity Fund outpaced the benchmark across rolling time periods, it trailed the category average on a 2-year and 5-year rolling return basis.

The fund stood in the top quartile on a 1-year and 3-year rolling periods, while it lagged behind the top performers on 2-year and 5-year rolling periods. Kotak Standard Multicap Fund, JM Multicap Fund and Edelweiss Multi-Cap Fund were the other top performers in the category.

On risk-return parameters, the fund has registered relatively higher volatility. However, its risk-adjusted returns are in line with the benchmark and category average.

Investment strategy of HDFC Equity Fund

Categorised as multi-cap fund, HDFC Equity Fund is mandated to invest minimum 65% of its assets in equity and equity related instruments. It intends to offer diversification by investing in companies across major industries, economic sectors and market capitalisation that offer an acceptable risk-reward balance. The fund seeks to predominantly invest in companies that:

  • Are likely to achieve above average growth

  • Enjoy distinct competitive advantages, and

  • Have superior financial strength

The fund has the flexibility to invest a portion of its assets in debt and money market instruments, and units of REITs and InvITs. However, it prefers to remain fully invested in equities.

Graph 3: HDFC Equity Fund Portfolio allocation and market capitalisation trend

Graph 3: HDFC Equity Fund Portfolio allocation and market capitalisation trend
Holding (in %) as on September 30, 2019
(Source: ACE MF)

HDFC Equity Fund has the flexibility to invest in equities across market capitalisation, but it allocates majority of the portfolio in large caps. In the last one year, the fund has gradually increased allocation towards large caps to around 90% from around 80%. Meanwhile, allocation towards mid and small caps has been reduced. Its allocation towards mid caps has been in the range of 6-11% and that of small caps has been around 5%. As the fund remains fully invested in equities, its cash holding is usually well within 1% of its assets.


​Graph 4: HDFC Equity Fund top portfolio holdings

Graph 4: HDFC Equity Fund top portfolio holdings Graph 4: HDFC Equity Fund top portfolio holdings
Holding (in %) as on September 30, 2019
(Source: ACE MF)

As on September 30, 2019 HDFC Equity Fund held 44 stocks in its portfolio. The top 10 stocks constitute a significant 62.4% of the portfolio. ICICI Bank is the top holding in the portfolio with an allocation of 9.9%, closely followed by Larsen & Toubro (9.4%), Infosys (8.4%) and SBI (8.3%). Rest of the stocks in the top 10 holdings have allocation in the range of 3-6%.

The fund's holding is mainly concentrated towards five sectors that constitute around 75% of the portfolio. It has the highest allocation towards Bank at around 30%, followed by Infotech and Engineering (13% each) and Power and Petroleum Products (10% each). Finance, Consumption, Minerals and Pharmaceuticals are the other prominent sectors in the portfolio.

Top contributors

Among the domestic equities in the portfolio, ICICI Bank contributed the most to the fund's return in the last one year with a weighted return of 3.9%. Larsen & Toubro, Infosys and HDFC Bank, were the other top contributors to the portfolio gains. These stocks are part of the fund's top holdings.

On the other hand stocks like GAIL (India), Tata Steel, Vedanta and Cipla eroded some of its gains in the last one year.

Suitability of HDFC Equity Fund

HDFC Equity Fund's multi-cap approach gives it the flexibility to manoeuvre its portfolio in line with changing market conditions. However, its substantially high allocation towards large caps could limit its potential for high growth. Though large caps are known to provide stability across market phases, the fund's concentrated bets towards few selected stocks and sectors could prove risky if any of these stocks/sectors come under pressure.

The fund's performance track record over the years raises some concerns about its consistency. Further, the higher volatility registered by it means that it is suitable for aggressive investors with a higher risk-appetite and investment horizon of at least five years.

Note: This write up is for information purpose and does not constitute any kind of investment advice or a recommendation to Buy / Hold / Sell a fund. Returns mentioned herein are in no way a guarantee or promise of future returns. As an investor, you need to pick the right fund to meet your financial goals. If you are not sure about your risk appetite, do consult your investment consultant/advisor. Mutual Fund Investments are subject to market risks, read all scheme related documents carefully.

Editor's note: The last few years have not been among the best for equity mutual funds. While most funds have underperformed or are struggling to match the returns of the benchmark, there are few funds that have the potential to constantly generate alpha for its investors. And we have recently identified five such high alpha generating funds, in our latest report 'The Alpha Funds Report 2019'. Do not miss our latest research finding. Get your access to this exclusive report, right here!


About the Company including business activity

Quantum Information Services Private Limited (QIS) was incorporated on December 19, 1989.

QIS was promoted by Mr Ajit Dayal with an objective of providing value-based information/views on news related to equity markets, the economy in general, sector analysis, budget review and various personal products and investments options available to the Public. It was the first company to start equity research on an institutional level.

'PersonalFN' is a service brand of QIS and was started in the year 1999. In 1999, the Company registered the Domain name for providing information on mutual funds and personal financial planning, financial markets in general, etc. and services related to financial planning and research in various financial instruments including mutual funds, insurance and fixed income products to customers. It offers asset allocation and researched investment recommendations through its financial planning services.

Quantum Information Services Private Limited (QIS) is registered as Investment Adviser under SEBI (Investment Adviser) Regulations, 2013 and having Registration No.: INA000000680. In terms of the second proviso to Regulation 3 (1) of SEBI (Research Analysts) Regulations, 2014 the Company is not required to obtain Certificate of registration from SEBI.

Disciplinary history

There are no outstanding litigations against the Company, its subsidiaries and its Directors.

Terms and condition on which its offer research report

For the terms and condition for research report click here.

Details of associates

  1. Money Simplified Services Private Limited;

  2. PersonalFN Insurance Services India Private Limited;

  3. Equitymaster Agora Research Private Limited;

  4. Common Sense Living Private Limited;

  5. Quantum Advisors Private Limited;

  6. Quantum Asset Management Company Private Limited;

  7. India Private Limited;

  8. HelpYourNGO Foundation;

  9. Natural Streets for Performing Arts Foundation;

  10. Primary Real Estate Advisors Private Limited;

  11. HYNGO India Private Limited;

  12. Rahul Goel;

  13. I V Subramaniam.

Disclosure with regard to ownership and material conflicts of interest
  1. ‘subject company’ is a scheme on which a buy/sell/hold view or target price is given/changed in this Research Report;

  2. Neither QIS, it's Associates, Research Analyst or his/her relative have any financial interest in the subject Company; except for one of the associates holding units of HDFC Equity Fund.

  3. Neither QIS, it's Associates, Research Analyst or his/her relative have actual/beneficial ownership of one per cent or more securities of the subject Company, at the end of the month immediately preceding the date of publication of the research report;

  4. Neither QIS, it's Associates, Research Analyst or his/her relative has any other material conflict of interest at the time of publication of the research report except that QIS (PersonalFN) is, as per SEBI (Mutual Funds) Regulations 1996, an associate / group Company of Quantum Asset Management Company Private Limited and Trustees and Sponsor of Quantum Mutual Fund (QMF) and to that extent there may be conflict of interest while recommending any schemes of QMF. However, any such recommendation or reference made is based on the standard evaluation and selection process, which applies uniformly for all Mutual Fund Schemes. The payment of commission (upfront / annualized & trail), if any, for any Schemes by QMF to QIS (PersonalFN) is also at arm's length and as per prevailing market practices.

Disclosure with regard to receipt of Compensation
  1. Neither QIS nor it's Associates have received any compensation from the subject Company in the past twelve months;

  2. Neither QIS nor it's Associates have managed or co-managed public offering of securities for the subject Company;

  3. Neither QIS nor it's Associates have received any compensation for investment banking or merchant banking or brokerage services from the subject Company;

  4. Neither QIS nor it's Associates have received any compensation for products or services other than investment banking or merchant banking or brokerage services from the subject company in the past twelve months.

  5. Neither QIS nor it's Associates have received any compensation or other benefits from the subject Company or third party in connection with the research report

General disclosure
  1. The Research Analyst has not served as an officer, director or employee of the subject Company.

  2. QIS or the Research Analyst has not been engaged in market making activity for the subject Company.

Click here to read PersonalFN's Mutual Fund Rating Methodology

Subject Company means Mutual Fund Schemes

Quantum Information Services Private Limited CIN: U65990MH1989PTC054667 Regd. Office: 103, Regent Chambers, 1st Floor, Nariman Point, Mumbai - 400 021 Corp. Office: 16 Jolly Maker Chambers II, Nariman Point, Mumbai 400 021. Website: Tel.: 022 61361200 Fax.: 022 61361222 SEBI-registered Investment Adviser. Registration No. INA000000680, SEBI (Investment Advisers) Regulation, 2013

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