Mutual Funds

HDFC Equity: Stability during times of volatility - Buy

Yoganand D | Updated on February 10, 2018 Published on February 10, 2018

This fund invests mainly in bluechips and has an impressive record across cycles

Investors looking to park their money in large-cap funds can buy the units of HDFC Equity, a consistent long-term performer. The fund has a track record of delivering remarkable returns in the long run.

For instance, over a five-year period, the fund has delivered 17.4 per cent against the benchmark Nifty 500 returns of 14.8 per cent; over a 10-year period it delivered an annualised return of 13.3 per cent against Nifty 500 returns of 7.9 per cent.

Investors with a moderate risk appetite and long-term perspective can bet on this fund, particularly during volatile market phases. The fund predominantly invests in bluechip stocks.

After an impressive showing in 2014, when the fund clocked 53 per cent gains against the benchmark return of 35 per cent, its performance waned in 2015 and 2016. This could be attributed to the underperformance of banking and IT stocks. The fund largely invests in these two sectors.

But the strong rally in banking stocks in 2017 worked in its favour and the fund generated returns of 36.8 per cent, comfortably beating the category average returns of 30.6 that year. A possible recovery in the banking sector and turnaround in the IT sector can aid the fund’s performance in the long term.

Portfolio and strategy

Alongside a gradual increase in allocation to the top preferred sectors — banks and software — the fund also boosted its exposure to construction projects and the power sector over the past year. More than 60 per cent of the asset allocation goes to these four sectors.

The top five stocks account for about 40 per cent of the fund’s portfolio. It takes a more fundamental and value-driven view over the long run and avoids short-term, momentum-based bets. Marginally trimming its allocation to SBI, the fund added Axis Bank to its basket over the last four months. It added Reliance Nippon Life Asset Management to the basket recently. It added stocks such as Avenue Supermarts, Vedanta, Tata Chemicals, Century Textiles & Industries and Container Corporation of India, which are performing well, over the last one year.

On the other hand, the fund has drastically reduced its allocation to automobile, media & entertainment, transport and pesticide sectors. This could be due to profit-taking in key stocks such as Maruti Suzuki India, Network 18 Media and Adani Ports.

It also exited the stocks of Bharti Airtel, BPCL, NHPC and Crompton Greaves Consumer Electrical over the past year. The fund is currently overweight on banks, construction, engineering and metals and underweight on automobile, healthcare and chemicals. It holds about 50 stocks in the portfolio.

The fund has around 22 per cent exposure to mid- and small-caps, which could boost the overall portfolio returns.

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