{"id":28514,"date":"2024-02-13T16:40:39","date_gmt":"2024-02-13T11:10:39","guid":{"rendered":"https:\/\/kuvera.in\/blog\/?p=28514"},"modified":"2024-02-14T16:13:50","modified_gmt":"2024-02-14T10:43:50","slug":"hdfc-mf-2024-outlook-india-in-amritkal","status":"publish","type":"post","link":"https:\/\/kuvera.in\/blog\/hdfc-mf-2024-outlook-india-in-amritkal\/","title":{"rendered":"HDFC MF 2024 Outlook India in Amritkal"},"content":{"rendered":"

Continuing our series on Indian AMCs’ annual reports, today we look at the highlights of HDFC MF<\/span>\u00a0<\/span>Yearbook 2024 India in Amritkal<\/b><\/p>\n

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Let’s get started?<\/span><\/p>\n

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Before we begin, don\u2019t forget to check out @Kuvera_In\u2019s insights from investors –\u00a0 <\/span>India Rising | 2023 Review and 2024 Outlook<\/b>.<\/span><\/p>\n

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Download: <\/span>https:\/\/kuvera.in\/IndiaRising_2024Outlook<\/span><\/a><\/p>\n

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  1. The Year Gone By\u00a0<\/b><\/li>\n<\/ol>\n

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    In 2023, assets that struggled in the earlier year rebounded, while previous strong performers faced challenges.<\/span><\/p>\n

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    \"\"<\/span><\/p>\n

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    ?? Indian markets performed strongly with positive returns in 9 out of 10 years.<\/span><\/p>\n

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    ??Global equities, including developed markets, rebounded in 2023 while China faced growth challenges.\u00a0<\/span><\/p>\n

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    \u00a0<\/span><\/p>\n

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    In 2023, most commodities experienced corrections, except for Gold and Iron Ore, while Oil maintained a relatively stable range throughout the year.<\/span><\/p>\n

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    1. Global Economy\u00a0<\/b><\/li>\n<\/ol>\n

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      ??World economic growth in 2023 fared better than expected<\/span><\/p>\n

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      ??US growth surprised on the upside while China disappointed<\/span><\/p>\n

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      ??EU remained lackluster\u00a0<\/span><\/p>\n

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      ??Global inflation eased in response to monetary tightening and supply chain normalization<\/span><\/p>\n

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      \"\"<\/span><\/p>\n

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      ?? The US fiscal deficit widened sharply and boosted growth further<\/span><\/p>\n

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      ?? Deficit was higher by ~USD 1 trillion in 2023 (vis-\u00e0-vis 2022) driven by fall in income taxes<\/span><\/p>\n

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      \"\"<\/span><\/p>\n

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      Accumulated savings have dwindled in recent years, potentially dampening private consumption. Elevated mortgage rates are expected to continue suppressing demand in the US housing sector.<\/span><\/p>\n

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      Real estate struggled, exports remained weak, consumption stayed steady, and infrastructure investment grew robustly with government support.<\/span><\/p>\n

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      \"\" \"\" \"\"\"\"<\/span><\/p>\n

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      Eurozone growth was hampered by rising natural gas prices, subdued consumer sentiment, the Ukraine war, and a modest Chinese recovery.<\/span><\/p>\n

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      \"\"<\/p>\n

      Economic activity indicators saw across-the-board weakness.\u00a0<\/span><\/p>\n

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      \n\u00a0<\/span><\/p>\n

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      III. Indian Economy<\/b>\u00a0<\/span><\/p>\n

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      India is on the road to becoming the world’s 3rd-largest economy in the next five years while continuing to grow at double the global rate. ?<\/span><\/p>\n

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      Robust growth driven by investment, manageable current account, stable inflation within the (2-6)% target range, and easing Core CPI.\u00a0<\/span><\/p>\n

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      India’s per capita income is projected to more than double in the next 8 years, driving increased consumer spending.<\/span><\/p>\n

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      Also, India\u2019s household debt is among the world\u2019s lowest.<\/span><\/p>\n

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      \"\"\"\"<\/span><\/p>\n

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      Government capex has risen sharply post-pandemic and Centre + state capex is estimated to rise to ~6% of GDP in FY24 from 3.6% in FY20.\u00a0<\/span><\/p>\n

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      \"\" \"\" \"\"<\/p>\n

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      India\u2019s growth has shown remarkable resilience with most high frequency indicators growing at a steady pace.\u00a0<\/span><\/p>\n

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      \"\"<\/span><\/p>\n

      However, savings decline, IT job losses and waning pent-up demand could impact urban consumption.<\/span><\/p>\n

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      \"\"<\/span><\/p>\n

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      In 2023, high inflation and rural challenges affected consumption, but easing inflation, higher food prices, and elections offer optimism.<\/span><\/p>\n

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      \"\"<\/span><\/p>\n

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      1. Indian Equity Markets<\/b><\/li>\n<\/ol>\n

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        ?? Performance of Indian equities was supported by resilient growth, strong corporate earnings and steady DII flows<\/span><\/p>\n

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        ?? All major sectors ended 2023 with +ve returns.\u00a0<\/span><\/p>\n

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        ?? Capital Goods did better due to the government’s continued focus on capex. Auto, Healthcare, Infra outperformed the rest significantly.<\/span><\/p>\n

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        \"\"<\/span><\/p>\n

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        In the last one year, only 7\/100 of the stocks have delivered negative returns 53\/100 stocks have delivered >40% returns.\u00a0<\/span><\/p>\n

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        ? Mid and small-cap funds see strong inflows<\/span><\/p>\n

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        ? Small Cap PEs are at a premium<\/span><\/p>\n

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        ? No. of folios shoots up ?<\/span><\/p>\n

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        In the last decade, MFs: 3x increase in investor folios, Monthly SIPs >Rs. 17,000 crore (40% of Equity AUM), MF ownership in NSE listed companies up to 8.8% (from 6.4% in Sep 18), ~INR 1,43,000 crore cash in equity\/equity-oriented hybrid schemes (5.5% of equity AUM).<\/span><\/p>\n

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        Demat accounts in India surged from 36 mn (Apr 2019) to 135 mn (Nov 2023), a ~3.8x rise in under 5 years. F&O activity spiked, led by retail investors.<\/span><\/p>\n

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        ?? Most major markets are trading at close\/lower to historical averages.\u00a0<\/span><\/p>\n

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        ?? US trades at above long term averages while Europe and EMs are trading below LTAs.\u00a0<\/span><\/p>\n

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        1. Sectoral Outlook<\/b><\/li>\n<\/ol>\n

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          And now, a look at sector-wise outlook for 2024 by HDFC MF\u00a0<\/span><\/p>\n

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          Automobile OEMs<\/b><\/p>\n

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          Govt\u2019s stringent localisation norms refocus on established electric 2W\/3W players, with new entrants struggling.\u00a0<\/span><\/p>\n

          Meanwhile, select OEMs advance in the EV space, and China eclipses Japan and Europe as the top EV exporter.<\/span><\/p>\n

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          \"\"<\/p>\n

          \u2026\u2026\u2026\u2026\u2026<\/span><\/p>\n

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          Automobile OEMs <\/b>contd.<\/span><\/p>\n

          2024’s EV sector growth might slow amid rising inflation & interest rates. Valuation gaps between EV leaders and others are narrowing, driven by incumbents’ resurgence in tech, slightly raising sector valuation above the 20x PER historical average.<\/span><\/p>\n

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          Banking & Financial Services<\/b><\/p>\n

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          India’s credit to GDP at 70% is modest compared to the US’s >150%, hinting at a rise in credit growth as penetration deepens. Retail credit sees robust growth, driven by steady mortgages and a surge in unsecured advances.<\/span><\/p>\n

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          Banking & Financial Services contd.<\/b><\/p>\n

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          Valuations are ~10% below long-term average, yet profitability is up. Slower deposit than loan growth may raise costs or curb growth. RBI’s tighter unsecured loan rules might slow growth but enhance long-term asset quality.<\/span><\/p>\n

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          \"\"<\/p>\n

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          \u2026\u2026\u2026\u2026\u2026<\/span><\/p>\n

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          \"FD<\/a><\/p>\n

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          Consumer Staples (FMCG)<\/b><\/p>\n

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          FMCG in India has lower per capita consumption than Asian peers, offering long-term growth through increased consumption and premiumization. Risks include saturation in big categories and the rise of private labels and D2C players.<\/span><\/p>\n

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          \u2026\u2026\u2026\u2026\u2026..<\/span><\/p>\n

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          FMCG contd.<\/b><\/p>\n

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          FMCG’s forward PER valuations stand at 40x, aligning with the 5-year average. The sector’s clear medium-to-long term earnings growth and robust return ratios justify these high multiples.<\/span><\/p>\n

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          Capital Goods<\/b><\/p>\n

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          India’s private capex cycle may rebound after a quiet decade, spurred by core industry revival and new-age manufacturing, plus export growth as countries diversify supply chains.\u00a0<\/span><\/p>\n

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          \u2026\u2026\u2026\u2026\u2026<\/span><\/p>\n

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          Capital Goods contd.<\/b><\/p>\n

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          Public capex, already robust, could strengthen with focused Central and State efforts.<\/span><\/p>\n

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          Current valuations in this sector are running above the long-term average.<\/span><\/p>\n

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          \"\"<\/p>\n

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          \u2026\u2026\u2026\u2026\u2026.<\/b><\/p>\n

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          Indian IT Services<\/b><\/p>\n

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          US economic outlook is crucial for short-term growth. Indian IT Services may benefit from a higher digital mix and offshoring comfort in the mid-term. Normalizing attrition and better utilization could boost margins.<\/span><\/p>\n

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          \"\"<\/p>\n

          \u2026\u2026.<\/span><\/p>\n

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          Indian IT Services contd.<\/b><\/p>\n

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          After 2020\/21’s re-rating, IT sector valuations dropped in 2022\/H1 2023 amid global challenges. H2CY23 saw a re-rate with revenue recovery hopes for FY25. Current valuations are ~25% above long-term averages, with midcaps at a higher premium.<\/span><\/p>\n

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          \u2026\u2026.<\/span><\/p>\n

          Oil & Gas<\/b><\/p>\n

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          Auto fuel retailing’s low competitive intensity hints at long-term margin expansion. Firms diversifying into petrochemicals and natural gas could stabilize earnings.<\/span><\/p>\n

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          Oil & Gas contd.<\/b><\/p>\n

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          The S&P BSE Oil & Gas Index trades near its 10-year low in terms of 1-yr forward P\/E, indicating potential valuation interest.<\/span><\/p>\n

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          \u2026\u2026\u2026..<\/span><\/p>\n

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          Pharmaceuticals<\/b><\/p>\n

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          Easing cost pressures and sustained below trend-level US pricing erosion may result in better profitability.<\/span><\/p>\n

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          \u2026..<\/span><\/p>\n

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          Pharmaceuticals contd.<\/b><\/p>\n

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          But, investment opportunities will be selective given companies\u2019 idiosyncratic growth drivers and differing investment cycles<\/span><\/p>\n

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          Sector is trading at 26x 1-year forward P\/E, a ~14% premium to its 10-year average<\/span><\/p>\n

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          \"\"<\/span><\/p>\n

          \u2026..<\/span><\/p>\n

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          Telecom<\/b><\/p>\n

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          With 5G adoption, global trends show data usage per user could double from 4G levels. This tech leap may boost telecom revenue as users upgrade for more data.<\/span><\/p>\n

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          \"\"<\/span><\/p>\n

          \u2026\u2026\u2026<\/span><\/p>\n

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          Telecom contd.<\/b><\/p>\n

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          Indian Telecom Sector’s EV\/EBITDA at 9x for FY25e is 12% above its historical average, compared to global rates ~6-7x.<\/span><\/p>\n

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          \"\"<\/span><\/p>\n

          \u2026\u2026\u2026<\/span><\/p>\n

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          Outlook: Utilities<\/b><\/p>\n

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          India’s electricity use is just 1\/3rd of the global average. Rising income and economic activity signal strong demand growth, with electricity demand to GDP at ~0.9x.\u00a0<\/span><\/p>\n

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          \u2026.<\/span><\/p>\n

          Utilities contd.<\/b><\/p>\n

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          Key drivers are increasing manufacturing, industrial activity, and appliance sales.<\/span><\/p>\n

          The sector valuations currently exceed historical averages.<\/span><\/p>\n

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          \"\"<\/p>\n

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          1. <\/b>Fixed Income Outlook<\/b><\/li>\n<\/ol>\n

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            In FY25, <\/span>HDFC MF<\/span> expects steady ~6.5% GDP growth, driven by rural spending & HH capex.<\/span><\/p>\n

            With an expected CPI dip to 4.5% in FY25, rising real yields may dampen consumption & growth.<\/span><\/p>\n

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            \"\" \"\" \"\"<\/p>\n

            \u2014—–<\/b><\/p>\n

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            Inflation<\/b><\/p>\n

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            Uncertain crop yields likely due to uneven monsoon.<\/span><\/p>\n

            Low reservoirs may affect rabi sowing. Govt actions like duty cuts and increased imports aim to stabilize prices.<\/span><\/p>\n

            CPI likely to fall with weaker core CPI and normalizing food costs.<\/span><\/p>\n

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            \"\" \"\" \"\"<\/p>\n

            \u2014—–<\/span><\/p>\n

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            External Sector<\/b><\/p>\n

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            India’s external sector shows resilience: Services exports counter oil price vulnerability, manageable current account, and strong forex reserves soften global monetary tightening’s impact.\u00a0<\/span><\/p>\n

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            \"\" \"\" \"\"<\/p>\n

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            \u2014—<\/span><\/p>\n

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            Fiscal Consolidation<\/b><\/p>\n

            Fiscal deficit set to meet targets. Gsec demand-supply well balanced. Rising AUM by long-term buyers (Insurance & PF) ensures a steady demand for dated securities, especially long-duration bonds, boding well for a favourable yield outlook.<\/span><\/p>\n

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            \"\" \"\" \"\"<\/p>\n

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            \u2026\u2026<\/span><\/p>\n

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            Inclusion of Indian Gsecs into Global Bond Index<\/b><\/p>\n

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            JP Morgan announced it will Indian Gsecs to its Global Bond Index-EM. Expected lower yields and a diverse investor base to add stability. RBI’s strong forex reserves and stable FPI holdings should limit yield volatility.<\/span><\/p>\n

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            \"\" \"\" \"\"<\/span><\/p>\n

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            Corporate Credit<\/b><\/p>\n

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            Credit quality remains robust. With private capex set to rise in the medium-term, the capex cycle is expected to boost credit demand and widen corporate spreads.<\/span><\/p>\n

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            \"\" \"\" \"\"<\/span><\/p>\n

            \u2026.<\/span><\/p>\n

            Final Word on Fixed Income\u00a0<\/b><\/p>\n

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            HDFC MF believes that the Bond Index inclusion and softening inflation bode well for yields. The long end likely to outperform, and it is time to increase duration.<\/span><\/p>\n

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            \"\"<\/span><\/p>\n

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            And those were the highlights of\u00a0 HDFC MF <\/span>2024 outlook.<\/span><\/p>\n

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            Interested in how we think about the markets?<\/strong><\/p>\n

            Read more: Zen And The Art Of Investing<\/a><\/p>\n

            Watch here:<\/strong> Investing through various economic and market cycles<\/p>\n

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