HDFC Small Cap Fund

HDFC Small Cap Fund

(An open ended equity scheme predominantly investing in small cap stocks)

Small is Powerful!

This product is suitable for investors who are seeking*:

? To generate long-term capital appreciation /income. ? Investments predominantly in Small-Cap companies. *Investors should consult their financial advisers if in doubt about whether the product is suitable for them.

Riskometer

October 2019

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Table of Contents

? Small Cap Universe ? Why Small Caps? ? Sector-wise presence ? Large Cap vs Small Caps ? Correction of excesses in small cap segment ? Correction in small caps : Right time to invest ? ? Long Term approach to small cap investing ? Scope for bottom-up stock picking ? HDFC Small Cap Fund ? Fund History, Portfolio Construct, Sector-Wise allocation, Portfolio

Turnover, Portfolio Diversification, Portfolio Statistics ? Scheme Performance ? Disclaimer & Risk Factors

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Small Caps

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Small Cap Universe

Parameters Small-Cap Universe

Market Cap Range Allocation to SmallCap Stocks

Details

Companies beyond 250th company in terms of full

market capitalization

Rs 8,801 Cr and below (As of 30th June 2019)

65%-100%

Classification as per SEBI circular on rationalization and merger of schemes.*

Large Universe provides more opportunities for alpha generation.

Large caps ? 100 Companies

Rs 28,920 Cr and above

Mid caps 150 Companies

Rs 27,454 Cr to Rs 8,858 Cr

Rs 8,801 Cr and below

Source: Classification as per SEBI circular (SEBI / HO/ IMD/ DF3/ CIR/ P/ 2017/ 114) dated October 6, 2017, wherein the universe of "Small Cap" shall consist of companies below 250th company in terms of full market capitalization. *AMFI - As on 30th June 2019. Stock cut off ? Market Cap above Rs 150 Cr. 1204 small cap companies mentioned above are those small cap companies with market cap>Rs 150 Cr.

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Why Small Caps?

Scope for returns ? Size of the company increases ? Analysts start tracking stocks ? Institutional holding increases ? Better disclosure levels can lead to greater familiarity and high multiples ? As a result, smaller stocks which can be mis-priced get re-priced

Under Researched: Limited Analyst Coverage Under Owned: Lower Institutional Holding

Index

NIFTY 50 Index NIFTY Midcap 100 Index NIFTY Small Cap 100 Index

Average Analyst Cove rage

38 16 8

Ownership Pattern amongst Index Constituents (%)

Index NIFTY 50 Index

Promoter Group

Institutional

Retail

42

41

16

NIFTY Midcap 100 Index

55

28

17

NIFTY Small Cap 100 Index

50

24

26

For small cap stocks, company specific factors have a much higher impact than macro factors

Source: Bloomberg, HDFC AMC Internal Research, Company Reports Average analyst coverage is the average number of analysts covering each of the index constituents as on September 30th 2019. Ownership pattern as disclosed by index constituent companies to the NSE as on QE June 2019

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Sector-Wise Presence ? Large Caps vs Small Caps

Small Caps^ provides investment opportunities in segments of the economy which are not covered by Large Caps*.

35

30

25

NIFTY 50 : High

Concentration in

20

some industries

15

10

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Key Statistics

NIFTY 50

Number of Industries

21

Top 5 Industries (%)

76

Top 10 Industries (%)

91

NIFTY 50 NIFTY Small Cap 100

NIFTY Small Cap 100

28

45

67

Industries covered by NIFTY Small Cap 100 but not part of NIFTY 50

-

% Weight in Index BANKS SOFTWARE CONSUMER NON DURABLES PETROLEUM PRODUCTS FINANCE

AUTO CONSTRUCTION PROJECT

POWER PHARMACEUTICALS

CEMENT TELECOM - SERVICES NON - FERROUS METALS CONSUMER DURABLES

FERROUS METALS OIL

MINERALS/MINING PESTICIDES

TRANSPORTATION GAS

TELECOM - EQUIPMENT &... MEDIA & ENTERTAINMENT

AUTO ANCILLARIES CHEMICALS

CONSTRUCTION FERTILISERS

HEALTHCARE SERVICES HOTELS, RESORTS AND... INDUSTRIAL CAPITAL GOODS INDUSTRIAL PRODUCTS

RETAILING TEXTILE PRODUCTS

TRADING

Data is As of 30th September 2019 Source : MFI Explorer . Sector classification as per AMFI. Classification as per SEBI circular (SEBI / HO/ IMD/ DF3/ CIR/ P/ 2017/ 114) dated October 6, 2017. The universe of "Large Cap" shall consist of companies up to 100th company in terms of full market capitalization. The universe of "Small Cap" shall consist of companies below 250th company in terms of full market capitalization. * As represented by NIFTY 50 Index, ^ As represented by NIFTY Small Cap 100 Index Stocks/sectors referred above are illustrative and are not recommended by HDFC Mutual Fund/AMC. The Fund may or may not have any present or future positions in these stocks/sectors. The above statements / analysis should not be construed as an investment advice or a research report or a recommendation to buy or sell any security covered under the respective sector/s .The same has been prepared on the basis of information, which is already available in publicly accessible media.

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Correction of excesses in Small Cap segment

1400

NIFTY 50 TRI

NIFTY Small Cap 100 TRI

1200

Index Values (Rebased to 1st Jan 2004)

1000

800

600

400

200

0 Sep-04 Sep-05 Sep-06 Sep-07 Sep-08 Sep-09 Sep-10 Sep-11 Sep-12 Sep-13 Sep-14 Sep-15 Sep-16 Sep-17 Sep-18 Sep-19

Source: HDFC AMC Internal Research, Bloomberg. All calculations as of September 30th 2019. Index Values rebased to 1st January 2004 which is the inception date of the NIFTY Small cap 100 index. Historical performance indications and financial market scenarios are not reliable indicators for current or future performance. Small Caps carry a higher risk of market fluctuations and are also prone to higher liquidity risks. Small caps are strictly not comparable to Large caps stocks.

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Correction in Small Caps: Right time to invest?

NIFTY Small Cap 100 TRI Index witnessed 1 Year loss exceeding 10% in 589 instances since inception*. However, 3 Year CAGR from such days was always positive with returns greater than 15% p.a. in ~ 68% instances

NIFTY Small Cap 100 TRI: 3 Year CAGR after 1 Year loss exceeding 10%

Annualized Returns

> 0 %

Number of Instances

589

% of Instances

100%

>= 10%

431

73%

>= 15%

400

68%

>= 20%

317

48%

* Data up to 30th September 2019. The above simulation is for illustration only. Past performance may or may not be sustained in the future. Mutual Fund/AMC is not guaranteeing returns on investments made in this scheme.

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