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Banking on the capex

Vinay Kulkarni, Fund Manager, HDFC Taxsaver, believes that capex should improve meaningfully before FY17-end, benefiting cyclical/interest rate sensitive sectors such as banks and capital goods

Over a four-year period between 2012 and 2015, when growth in the economy slowed down, inflation and interest rates were at a very high level. In this period, the defensive themes such as consumer staples and pharma did very well. That phase is coming to an end, says Vinya Kulkarni, senior fund manger - equities, HDFC Mutual Fund..

Real pick up to come from capex side

What is the investment strategy for the fund?

HDFC TaxSaver will aim to achieve capital appreciation by investing predominantly in high quality stocks with good growth potential which are trading at reasonable valuations. The portfolio would predominantly comprise of large cap stocks.

The Fund will invest in a minimum of 6 sectors, which are not highly correlated, the objective being to maintain reasonable diversification.

What is included in the portfolio and what is avoided?

What will be avoided will be weak quality companies with unsustainable earnings and high valuations.

The Fund shall at all points of time be only invested in those companies where we have a clear understanding of the businesses, have a high quality of management, a sustained track record of profitability and are available at a reasonable valuation. (For details on complete portfolio visit or website www.hdfcfund.com

Tax planning funds have a different redemption pattern given the three year lock-in compared to the diversified equity schemes. How much does this factor play a role in fund management and investment? Does it have any bearing on cash allocation?

The Fund, on account of a 3 year lock in period for investors, has relatively higher flexibility of investing in mid cap companies operating in new / emerging businesses / sectors with a long term gestation period. As of 31 Dec 2015, the Fund has 29% in mid cap stocks and 67% of assets in large cap stocks.

However, at all times, the objective is to invest in companies which meet the criteria laid out in point (1) above.

Any tactical miss you regret (not having, or not having enough or holding something) in your portfolio?

Over a 4 year period between 2012 and 2015, when growth in the economy slowed down inflation and interest rates were at a very high level. In this period, the defensive themes such as consumer staples and pharma did very well. That phase is coming to an end. We are seeing Tax/GDP ratio going up and subsidies coming down. Going forward, we believe that real pick up has to come from the capital expenditure side of the economy. In the first phase the capex revival is being led mainly by infrastructure sector / government and its entities. We believe that before the end of FY17, economy, capex, asset quality in banks etc would have witnessed meaningful improvement. Hence we believe that investor focus will increasingly shift away from the defensives to high growth domestic cyclicals / interest rate sensitive sectors such as banks and capital goods. These are the sectors where the Fund is currently overweight.

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