1

Choose a
better route.
Aim to stay ahead with
HDFC Business Cycle Fund




HDFC Business Cycle Fund aims to invest in businesses likely

on the cusp / midst of a favourable business cycle.

Refer disclaimers on page 48

01
Nature of Business Cycles
1

Peak
(Stable growth
at high levels)
Business Activity

Co
nt
(D ow
sl
ec in

ra
lin g g
n

c
in ro
sio
th)

tio
g w
/ th
row

n
n
gg
pa

)
isin
Ex
(R

Slump
(Phase of weak / no growth)

Time
Refer disclaimers on page 48
02
Nature of Business Cycles
1

Key parameters Expansion Peak Contraction Slump

Volume growth Rising Stable growth Declining / slow growth Phase of weak / no growth

Pricing power Improving High Reducing Weak

Competitive Low, businesses look Focus shifts on

Low High
intensity to increase market share protecting market share

Cost consciousness Usually low as As sales and margins

Low come under pressure, High
(CC) profitability is high
CC builds in

Capex plans are High capex taking into Fresh capex plans
Capex considered and account past growth cancelled, existing Capex plans are realigned
planned /sometimes leads to ones delayed
excesses

Return on Capital Declining, with new Low ROCE, often raising

Rising High
employed (ROCE) capacities coming live questions on past capex

Business
Improving High Weakening Pessimism
sentiment

Refer disclaimers on page 48

03
Various cycles at play
1

Expensive / reasonable / Expansion / contraction of

attractive market valuations the economic growth
Valuations
and market Economic
cycle cycle

Greed / fear reflecting in Increase / Decrease in interest

Investor
retail and institutional flows sentiment rates by the central bank and
Inflation
cycle and Interest reflected in debt markets
rate cycle

Corporate
profits Business
Increase / decrease in net profits
cycle cycles Expansion / contraction in Sales,
Credit Margins, optimism / pessimism
on account of movement in sales, and Asset in business expectations
margins, and leverage quality
cycle reflecting in capex plans

Higher / lower credit creation and asset quality (NPAs)

Refer disclaimers on page 48

04
One Sector, Multiple Business Cycles
1

One sector could harbor multiple businesses in different stages of business cycle

Formulations
2 wheelers

Medical CDMO /CRO*

devices
Electric
Vehicles 4 wheelers /
(across other
cycles)
cars Pharma /
Auto & healthcare
Auto
Ancillaries
Diagnostics API*

Tractors and Three

commercial wheelers Hospitals
vehicles

Auto: 5 distinct businesses Pharma: 6 distinct businesses

*CDMO: Contract Development and Manufacturing
Organization; CRO: Contract Research Organisation;
API: Active Pharmaceutical Ingredient

05
Why does business cycle investing make sense?
1

Higher confidence on forecasts

Estimating positioning of various business cycles and their trajectory can be done with higher confidence vs the general economic cycle

Correlation with valuations

When businesses are in upcycle, investors get dual benefit of earnings growth and improvement in valuation multiples
(#case studies ahead)

Investment Strategy

Invest in businesses likely on the cusp/midst of favorable business upcycle, avoid businesses about to enter/in a downcycle

Ahead of the curve

Based on lead indicators, domain expertise and recurring patterns in business history - Investing opportunities can be identified
ahead of time

Agility

Investments across companies and themes are not static in nature and can be rotated based on stages of business cycles.

06
 1

Presenting
HDFC Business Cycle Fund
An open ended equity scheme following business cycle based investing theme

Aim to stay ahead

Refer disclaimers on page 48

07
Portfolio Strategy
1

Presenting
Blend of top down and bottom up approach (page 9-10)

Core of portfolio (>80%) would be companies likely on the cusp / midst of favorable
business cycle, while avoiding companies about to enter/in a business downcycle

Investment across large, mid and small caps

Benchmark: Nifty 500 TRI

Optimally diversified across number of stocks

Non-core (<20%) portfolio would consist of

1) Growth stories relatively agnostic to the business cycle
2) Stocks relatively better positioned within their sector
3) Tactical opportunities with favorable risk-reward

08
Top down approach – Factors considered
1

Presenting
Macro indicators Business specific indicators

Domestic GDP growth Outlook on growth

An open Inflation
ended&equity scheme
Interest rates
following business cycle based investing theme
Competition in marketplace & Pricing power

Policy environment Bargaining power of buyers and suppliers

Business confidence Threat of substitutes

Geopolitical factors Consumer sentiment

Global growth (Exports potential) Capacity utilization and capex plans

Note: The above list is illustrative of the factors that the fund manager shall consider in assessing the stages of business cycles
09
Bottom up approach for stock selection
1

Presenting
Process-driven fundamental analysis and research
Deep understanding of stocks within diverse business cycles (#case studies)
Collaborate with independent domain experts
An open ended equity scheme following business cycle based investing theme
Aim to benefit from improvement/acceleration in earnings as the business enters a phase
of upcycle (expansion-peak)

Identify stocks most attractively valued relative to their quality of management, business
model & financial metrics
Focus on understanding how above factors will change over time

10
Case Study # 1 - Indian IT Services
1

Indian IT exports growth (US$ % YoY)

60%

50%
Offshoring wave
GFC Indian IT exports have grown at a robust 17% CAGR in the past
40%
Post-GFC pickup
twenty years:
30%
Covid-led
Digital
20%
Dot com Dot com
disruption
acceleration
FY02-08: Offshoring wave post Y2K led to a stellar 32% CAGR
boom crash Covid
10%

0%
FY10-15: Healthy 15% growth, led by continuous offshoring
and in-roads made by Indian players as strategic partners
FY99
FY00
FY01
FY02
FY03
FY04
FY05
FY06
FY07
FY08
FY09
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
FY20
FY21
FY22
for global enterprises

Indian IT revenue growth vs valuation

FY15-18: 8% CAGR; slowdown in growth rates due to
30% 32.0
adoption of cloud/digital and focus on automation
25% 28.0
FY21 onwards: Covid, investments in digital skills drove
20% 24.0
acceleration in growth
15% 20.0

10% 16.0 Sector valuation has moved in line with revenue growth
5% 12.0

0% 8.0
FY08

FY09

FY10

FY11

FY12

FY13

FY14

FY15

FY16

FY17

FY18

FY19

FY20

FY21

FY22

Indian IT US$ revenues (% YoY) Nifty IT 1-yr fwd PE (x)

Source: Nasscom, Bloomberg

11
Case Study # 2 - Banks
1

16
Presenting
Steady reduction in NPAs since 2018

20
Gross NPAs (%) Net NPAs (%)
Valuations moving largely in line with fundamentals

5
4.5
4
Bank Nifty P/B

3.5
12 3
2.5
8 2
1.5
4 1

An open ended equity scheme following business cycle based investing theme
0.5
0 0
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

2021

2022
Loan growth trending up Interest rates changes over the years
Deposit growth Advances growth SBI home loan rate SBI 1-year TD rate
35 13.0

28 11.2

21 9.4

14 7.6

5.8
7
4.0
-

Aug-08
Aug-06
Aug-04

Aug-09
Aug-05
Aug-03
Aug-02

Aug-20
Aug-07
Aug-01

Aug-10

Aug-22
Aug-18
Aug-16
Aug-14

Aug-19
Aug-15
Aug-13
Aug-12

Aug-21
Aug-17
Aug-11
Aug-08
Aug-06
Aug-04

Aug-09
Aug-05
Aug-03
Aug-02

Aug-20
Aug-07
Aug-01

Aug-10

Aug-22
Aug-18
Aug-16
Aug-14

Aug-19
Aug-15
Aug-13
Aug-12

Aug-21
Aug-17
Aug-11

Source: RBI, Niftyindices.com, Company data, Kotak Institutional Equities

12
Case Study #3 Auto – multiple business cycles (1/2)
1

1000
800
Presenting
2 Wheelers – multiples have seen correction due to rising EV threat
25
20
4 Wheelers – market leader saw expansion in multiples in a phase
of large market share gains
55
50
60
50
600 15
45 40
400 10 30
40 20
200 5 35 10
0 - 30 0
Mar-04

Mar-06

Mar-08

Mar-10

Mar-12

Mar-14

Mar-16

Mar-18

Mar-20

Mar-22

Mar-08
Mar-06
Mar-04

Mar-09
Mar-05

Mar-20
Mar-07

Mar-10

Mar-22
Mar-18
Mar-16
Mar-14

Mar-19
Mar-15
Mar-13
Mar-12

Mar-21
Mar-17
Mar-11
An open ended equity scheme following business cycle based investing theme
PER (Hero MotoCorp) Domestic 2W Volumes (in ₹000) PER (Maruti Suzuki) Market Share (LHS)

EV penetration has been faster in 2 wheelers

2W sales – EV penetration picking up All India 2W 4W sales – EV penetration slowly picking up All India 4W

5% 1.4%
4.7%
1.2%
4% 1.2%
1.0%
3% 0.8%
1.9%
2% 0.6%

0.9% 0.4%
1% 0.4%
0.2%
0.2%
0% 0.0%

Jan-21

Apr-21

Jul-21

Oct-21

Jan-22

Apr-22

Jul-22
Jan-21

Apr-21

Jul-21

Oct-21

Jan-22

Apr-22

Jul-22

Source: Edelweiss Research, Internal calculations

13
Auto – multiple business cycles (2/2)
1

Presenting
Commercial Vehicles – a large player got re-rated post
sharp market share gains over a span of few years
Tractor - Valuations moved in line with industry growth trends
Tractor - Valuations moved in line with industry growth trends

36 70.00 50.0% 30.0

34 60.00 40.0% 25.0
32 50.00 30.0% 20.0
30
28 An open ended equity scheme following business cycle based investing theme 40.00 20.0%
10.0%
15.0
10.0
30.00
26
20.00 0.0% 5.0
24

Oct-20
Apr-20
Oct-18

Apr-22
Apr-18
Oct-16
Oct-14

Oct-19
Apr-16
Apr-14

Apr-19
Oct-15
Oct-13

Oct-21
Apr-15
Apr-13

Apr-21
Oct-17
Apr-17
22 10.00 -10.0% 0.0
20 - -20.0% -5.0
-30.0% -10.0
Jun-03

Jun-05

Jun-07

Jun-09

Jun-11

Jun-13

Jun-15

Jun-17

Jun-19

Jun-21
-40.0% -15.0

Total tractor volumes Escorts 12-month forward PE

EV/EBITDA 1yr Fwd (AL) AL M&HCV Mkt Share (LHS)

Source: Edelweiss Research, Internal calculations

14
Case Study # 4 – Pharmaceuticals – global pricing is key
1

Presenting
US is the key earnings driver for the sector
Sales mix %
Generics pricing in the US is the key variable to track
40%
30%
US generic pricing (yoy)

20%
10%
0%
40% 40% 41% 41%
-10%
37% 37% 37% 36% 34%
-20%
An open ended equity scheme following business cycle based investing theme -30%
FY14

FY15

FY16

FY17

FY18

FY19

FY20

FY21

FY22

Aug-07
Apr-08
Dec-08
Aug-09
Apr-10
Dec-10
Aug-11
Apr-12
Dec-12
Aug-13
Apr-14
Dec-14
Aug-15
Apr-16
Dec-16
Aug-17
Apr-18
Dec-18
Aug-19
Apr-20
Dec-20
Aug-21
Apr-22
US India API Others

Sector margin/ROCE highly correlated to generics pricing… …which ultimately drives valuations
EBITDA margin% and ROCE Nifty Pharma P/E
35.0
31% 20%
29% 30.0
27% 15%
25% 25.0
23% 10% 20.0
21%
19% 5% 15.0
17%
15% 0% 10.0
FY20

FY22
FY18
FY16
FY14

FY19
FY15

FY21
FY17

Sep-12
Mar-13
Sep-13
Mar-14
Sep-14
Mar-15
Sep-15
Mar-16
Sep-16
Mar-17
Sep-17
Mar-18
Sep-18
Mar-19
Sep-19
Mar-20
Sep-20
Mar-21
Sep-21
Mar-22
Sep-22
EBITDA margin % ROCE % (pre-tax) RHS

Source: Goldman Sachs Global Investment research, company data; *Companies considered for above analysis include Sun, Cipla, Dr. Reddy’s, Zydus Lifesciences, Aurobindo, Lupin
15
# 5 – E-commerce – very high trend growth
1

Online Shoppers (transacts on online retail platforms) ATUs (mn)

1200
400
1000 825 990 375
743 825 350
800 637 800
300
600 494 660 722
422 250
543
400 343 458 200 165
381 190
321 135
200 220 150 110
0 100 75 90
50 50
FY16

FY17

FY18

FY19

FY20

FY21

FY22

FY25E
An open ended equity scheme following business cycle based investing theme 0

FY16

FY17

FY18

FY19

FY20

FY21

FY22

FY25E
Smart Phone Users (mn) Access to Internet (including shared devices) Users (mn)

Source: Redseer, Nykaa DRHP *Note- ATU - Annual transacting users

Source: Redseer, Nykaa DRHP

Market leader in Online Food Delivery MAUs (mn) Market leader in Online BPC, retail ATUs (mn)
60 10
53
50 8.4
8
40 41.5
32.1 6
30 5.6
29.3 5.3
4
20 3.5
10 13.8 2
0 0
FY18

FY19

FY20

FY21

FY22

FY19

FY20

FY21

FY22
Source: Company. MAU = Monthly Average Users Source: Company. BPC: Beauty and Personal Care
16
# 6 - Capex cycles: 2000s vs 2010s. 2020s?
1

(Rs bn) (Rs bn)

(Rs bn)
4,500 14,000 1,400
ex CAGR 3%
4,000 Private cap 4%
capex CAGR 12,000 3% 1,200
3,500 Priv a te + P S U
C AGR 1 27%
x R
10,000 ape AG
3,000 1% nt c 1,000 xC
R 4 R 42% ernme pe
AG Gov ca
2,500 ex C x CAG 8,000 800 ad
cap cape Ro
2,000 te
va U 6,000 R 13% 600
Pri + PS x CAG
1,500 vat
e
ment cape xCAGR 4%
Pr i
4,000 Govern 400 Road cape
1,000
2,000 200
500
- -
-

2022RE
2008
2006
2004

2009
2005
2003

2020
2007

2010

2018
2016
2014

2019
2015
2013
2012

2021
2017
2011
2009
2005
2003

2007

2019
2015
2013

2021
2017
2011

2003

2005

2007

2009

2011

2013

2015

2017

2019

2021
PSU capex (BSE-500) (Rs bn) Private capex (BSE-500) (Rs bn) Central Government capex (Rs bn) State Government capex (Rs bn) Roads capex (Rs bn)

India’s capex cycle in a meaningful way started only towards later part of 1990s.

2003-2010: Over this period, even though the base was low, India reported strong growth in capex spending at 21% CAGR—this was led by 13%
CAGR in Government capex spending and a very strong 42% CAGR in corporate capex spending (includes private companies and PSUs). This period
was aided by strong capex spending in core sectors including power, metals & mining, cement, etc.

2010-2022: Capex spending in India over 2010-2022 has seen large divergence—Private/PSU capex growth were muted at only 4% CAGR while large
spending by Central/State government (13% CAGR) saved the day and added to overall capex growth at 10% CAGR.

Government spending on roads, railways, metro projects, water, airports have all contributed to higher government spending over last decade.
However, private sector capex was weak due to highly leveraged balance-sheets and weak earnings for the core sector companies - this is
changing of late.

Source: RBI, Capitaline, Budget documents, NHAI

17
 1

Other Portfolio Attributes

18
22
Risk Management Metrics
1

Adequate diversification
Aim to be reasonably diversified across sectors / sub
sectors and across market capitalization

Active approach likely to result in relatively

lower portfolio overlap with the benchmark
Could also result in exclusion of select sectors
present in the benchmark but approaching /
undergoing a business downcycle.

19
Risk reward positioning
1

Presenting
Attribute
Aims at returns
higher than
traditional fixed
income instruments
Aims to protect
purchasing
power, suitable
Aims at wealth
creation with
dynamic asset
Aims at wealth
creation using
diversified
Aims at wealth
creation by
investing in
business cycles
Aims at wealth
creation by
investing in
specific themes
Aims at wealth
creation by
investing in
specific sectors
for systematic equities
such as fixed allocation likely to do well
withdrawal
deposit ^
Sector Funds
HDFC Banking
Expected Return

Other & Financial

Thematic
Category Services Fund
An open ended equity scheme followingDiversified
business cycle based investing theme Thematic – Funds
Name Business Cycle HDFC Housing
HDFC Business Opportunities
equity funds Cycle Fund Fund and HDFC
Balanced HDFC Infrastructure
Advantage (Multiple
Asset Flexi Cap businesses) Fund
Fund Fund (Singular
Allocation HDFC Balanced
Conservative Fund of Funds theme)
Advantage Fund
Hybrid Fund HDFC Asset
Scheme HDFC Hybrid Allocator Fund
Name Debt Fund of Funds$
Equity Range : Exposure to Equity Equity Range : Equity Range : Equity Range : Equity Range : Equity Range :
Equity 10% - 25% Oriented Schemes 65% - 100%** 80% - 100% 80% - 100% 80% - 100% 80% - 100%
Allocation Range : 40% - 80%

Expected Risk
Conservative Investor Risk Tolerance Aggressive Investor

Disclaimer: In view of the individual circumstances and risk tolerance, each investor is advised to seek appropriate professional advice. For complete portfolio allocation details, refer to the Scheme
Information Document. Risk is defined as per increasing level of equity exposure. Returns are not assured. ^ Unlike Fixed Deposit, investments in mutual fund are subject to market risks.$ The Fund invests
in equity, debt and gold ETF schemes and thus indirectly takes exposure to various asset classes. Investors in the Scheme shall bear the recurring expenses of the Scheme in addition to the expenses of
other schemes in which this Fund of Funds scheme makes investment (subject to regulatory limits). ** Total Hedged and Unhedged Equity allocation will be minimum 65%
20
Product suitability
1

Presenting
This product is suitable for investors who are seeking

To generate long-term capital appreciation/ income via investment predominantly in equity &
equity related instruments related to the business cycle theme

To take advantage of having higher exposure to businesses and companies at the “cusp of
An open ended
acceleration / midst”equity
of highscheme
earningsfollowing business
growth as they cycle
are about basedare
to enter/ investing
in a high theme
growth
phase

Investment horizon 3 or more years

21
Large and experienced team with a rigorous investment process
1

Rahul Baijal, Senior Fund Manager - Equities

Experienced team: 28 Investment professionals with average experience of 18 years

Experienced risk management team

Wide and deep stock coverage ~ 400 stocks in the core list covering ~85% of India market cap

HDFC Business Cycle Fund aims to leverage strengths in its research

and fund management team to manage funds based on outlook on
business cycles

22
Know your Fund Manager
1

Mr. Rahul Baijal

Senior Fund Manager - Equities

Rahul has an experience spanning over 20 years in Equity Research and Fund Management.

He joined HDFC Asset Management Company Limited in July’22. Prior to joining HDFC Asset Management
Company Limited, Rahul spent 6 years with Sundaram Mutual Fund as Senior Equity Fund Manager, where he
was managing schemes in the large cap, large & midcap, focused, hybrid equity and thematic categories. He
has won various accolades from different research agencies for his performance in the above categories. He
has also worked with Bharti AXA Life Insurance, TVF Capital (First Voyager Advisors), HSBC Securities and Credit
Suisse Securities in the past.

Mr. Rahul earned his PGDM (MBA) from Indian Institute of Management, Calcutta in 1999. He has also
completed his B.E. Electronics & Communication from Delhi College of Engineering, University of Delhi.

23
Fund Facts
1

Investment Objective To provide long-term capital appreciation by investing predominantly in equity and equity related securities with a focus
on riding business cycles through dynamic allocation between various sectors and stocks at different stages of business cycles

Fund Manager Mr. Rahul Baijal

Benchmark Index NIFTY 500 TRI (Total Returns Index)

• In respect of each purchase/switch-in of units, an Exit load of 1% is payable if units are redeemed/switched-out
within 1 year from the date of allotment.
• No Exit Load is payable if units are redeemed / switched-out after 1 year from the date of allotment.
Exit Load • No Entry / Exit Load shall be levied on bonus units and Units allotted on Re-investment of Income Distribution cum
Capital Withdrawal.
• In respect of Systematic Transactions such as SIP, GSIP, Flex SIP, STP, Flex STP, Swing STP, Exit Load, if any,
prevailing on the date of registration / enrolment shall be levied.
Plans Regular and Direct
Regular and Direct Plans offer the following sub-options:
a) Growth Option
b) Income Distribution cum Capital Withdrawal (IDCW) Option.
Options
IDCW option offers following Sub-Options / facilities:
a) Payout of IDCW Option / facility and
b) Re-investment of IDCW Option / facility
During NFO Period:
Purchase: Rs. 100/- and any amount thereafter
Minimum Application
During continuous offer period (after scheme re-opens for repurchase and sale):
Amount
Purchase and additional purchase: Rs. 100/- and any amount thereafter
Note: Allotment of units will be done after deduction of applicable stamp duty and transaction charges, if any.

24
Asset Allocation
1

The scheme will invest predominantly in equity and equity related securities with focus on
riding business cycles through dynamic allocation between sectors and stocks at different
stages of business cycles

Under normal circumstances, the asset allocation (% of Net Assets) of the Scheme's portfolio
will be as follows:

Types of Instruments Minimum Allocation (% Maximum Allocation Risk Profile

of Net Assets) (% of Net Assets)

Equity and Equity related instruments of

80 100 High to Very High
Business cycle based theme companies

Equity and Equity related instruments of

0 20 High to Very High
companies other than above

Units of REITs and InvITs 0 10 Medium to High

Debt securities, money market instruments and

0 20 Low to Medium
Fixed Income Derivatives

Units of Mutual Fund 0 20 Low to High

25
Nature of cycles…
1

Inevitable
and regular

Oscillating Self-
/ Follows correcting
patterns

26
Some quotes
Nature of cycles…
1

History doesn’t repeat itself, but it does rhyme

– Mark Twain

An Investor has to learn to recognize cycles, assess them, look for the instructions they imply,
and do what they tell him to do
– Howard Marks

If we apply some insight regarding cycles, we can increase our bets when the odds are in our
favor and take money off the table when the odds are against us
– Howard Marks

What you really want to do in investments is figure out what’s important and knowable.
If it's unimportant or unknowable, you forget about it
– Warren Buffett

In the business world, the rearview mirror is always clearer than the windshield
– Warren Buffett

Superior investors – like everyone else- don’t know exactly what the future holds, they do
have an above-average understanding of future tendencies
– Howard Marks

27
22
 1

APPENDIX 1
Some more business cycle
case studies

28
22
Nature
A- Global
of LNG
cycles…
Business Cycle
1

Global LNG prices tends to move in

cycle largely driven by underlying Cyclical nature of Global LNG follows underly supplying cycle
supply growth relative to demand
30 27 40
25
2012-16 was period of excess of 25 35 35
21
supply over demand by almost 20
30
~70MT 15
11
25
10
6 5
Prices started to move only after 5 3 20

absorption of earlier supplies 0

15
(1)
(5) (3)
10
Due to muted supply growth until (10) (7) (8)

2025-26 prices have moved high, (15)

Cycle of oversupply leading to lower prices
5
Cycle of undersupply leading to Higher prices
further exacerbated by the (20)
2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022E
-

Ukraine-Russia war.
Supply Growth - Demand Growth (MTPA) LNG Price ($/mmbtu, RHS)

Source: Bernstein Research, Morgan Stanley Research

22
29
Nature of cycles…
B- Defence —increased capital spending and indigenization efforts are business tailwinds
1

(Rs bn) Defence purchases by Indian forces

(Rs bn)
1,600 % 900
G R 11 14%
1,400 C A 800 C AG R
urchase
1,200 700 n d i ge nous p
% I
1,000 CAGR 5 600 Indigenous purchase CAGR 3%
800 500
600 400
400 300
200
200 100
- -

2023BE
2008
2006

2009

2020
2007

2010

2022
2018
2016
2014

2019
2015
2013
2012

2021
2017
2011

2020
2018
2016
2014

2019
2015
2013
2012

2021
2017
2011
India: defence capital outlay (Rs bn) Foreign OEM purchase (Rs bn) Indigenous purchase (Rs bn)

Source: Budget documents, Ministry of Defence

Defence capital spending seen sharp increase over last few years led by geo-political concerns and Government of India's
focus on India’s defence capability building

In 2021, 58% of capital acquisition funds were for domestic procurement which will increase to 68% in 2023 and see sharp
increase over next few years led by “Aatmanirbhar Bharat”

Government has released negative list of imports which can aid domestic defence ordering by INR 5 trillion over next 5-7
years. Increased focus on R&D and Transfer of Technology to domestic companies

22
30
Nature of cycles…
C - Metals - business cycles have large implications on sector outlook and earnings
1

(INR/ton) (US$/ton)
70,000 La rge Chi na 1,300
i nfrastructure La rge s ti mulus US:Chi na
60,000 i nvestment i n s ti mulus by Chi na rea s teel , tra de war 1,100
Chi na , Real-es tate ma jor es tate ca pa city Dema nd,
50,000 boom economies s l owdown cuts s l owdown 900

40,000 700

30,000 500
Sti mulus Chi na
20,000 GFC & Supply Property 300
cha i n s l owdown
10,000 i s sues 100

2008
2006
2004

2009
2005
2003
2002

2020
2007

2010

2022
2018
2016
2014

2019
2015
2013
2012

2021
2017
2011
India HRC steel prices (Rs/ton) [LHS] China HRC steel prices (US$/ton) [RHS]

Source: Bloomberg, Steelmint

Global economic/business cycle has large bearing on commodities including metals led by the changes in underlying
demand-supply fundamentals
STEEL down-cycles. Global Financial Crisis (GFC) of 2008-09, China real estate slowdown of 2015-2016 and US-China trade war in
2018-2019 led to sharp fall in steel prices and earnings of global and domestic steel companies; domestic steel prices trade on
global parity. Such periods saw large under-performance of steel stocks.
STEEL up-cycles. China’s large infrastructure and real-estate investment in 2003-2008, large stimulus by major economies in
2010-2011, China’s stimulus and steel capacity cuts in 2016-2017 led to strong recovery in steel prices and earnings of steel companies
and consequently out-performance of steel stocks. Similarly, post Covid-19, combination of large stimulus by all major economies,
high energy costs and supply chain issues led to sharp rally in steel prices and significant outperformance of steel stocks.

22
31
 1

APPENDIX 2
Economy and Equity
Market outlook

32
22
Nature
Indian of cycles…
economy has grown steadily despite several challenges
1

Average Annual Real GDP Growth % Average Annual Inflation %

18
16 15 16
14 13 13
12
9 10 6
10 7
8
6
4
6 6 7 6
2
0
1980-89 1990-99 2000-09 2010-21

1980-89 1990-99 2000-09 2010-21E

Operation Blue Star Global Oil Crisis - Gulf War Violence in Gujarat post Godhra Coal, NIMO etc. scandals
Rajiv Gandhi Government BoP Crisis, Reforms commence 9/11 , Dotcom Bubble bust QE Tapering, PIGS, Greece
Birth of IT Industry Asian Crisis, Era of coalitions Growth of Indian Generics Cos. High FD & CAD, high inflation
Rise of BJP in Indian Politics 1st BJP govt., Kargil Conflict 10 year Congress rule BJP Government elected twice
Advent of TV, Maruti Car Growth of IT, Satellite TV, Mobiles Lehmann Crisis, QE Demonetisation, GST, Make in India
Covid-19
Russia-Ukraine war

Source : IMF Data, Estimates are IMF estimates;

33
22
India
NatureEconomy & Markets: Discussion points
of cycles…
1

1 2 3 4 5

Make in India to China Shift from Banks – Housing -

benefit Indian +1 story is unorganized improving Affordability is
manufacturing unfolding to organized NPAs and rising at a high
segment players capital
adequacy

6 7 8 9 10
Corporate Continued Elevated Rising Geopolitical
balance sheet infrastructure commodity inflation & risks
deleveraging investments -led prices – supply interest rates
by the disruption,
Government demand
recovery

34
22
Make
Natureinof
India / China +1 story unfolding
cycles…
1

India lost to China in scaling up manufacturing in last two decades

Steps taken to boost domestic manufacturing
Disruption due to Covid-19 has triggered an urgency to diversify global supply chain and many global
MNCs are implementing China+1 strategy; further, wages and compliance costs in China have also risen PLI Schemes for select industries to promote import
This trend has come at an opportune time as India’s competitiveness has improved due to lower substitutions and increase exports
wages, PLI schemes, tax incentives, etc. along with other favourable government policies Raising duties under Phased Manufacturing Programme

Is India Ready ? Rationalization of Labour Laws and land reforms

Reducing tax rates for manufacturing units set up
India is a likely beneficiary of this shift in manufacturing due to the following reasons before Mar-23
A large domestic market & improving ease of doing business Opening up defence sector and banning imports of
Skilled human resources at competitive costs select items
Tariff and non-tariff measures to aggressively support manufacturing in India
Revision of MSME definition to incentivise scaling of
Production linked incentive scheme (PLI) improves competitiveness
operations
Focus on self reliance in defence, chemicals, pharmaceuticals, etc.
Source: Morgan Stanley; Publicly available information
Structural advantage - India’s share of working age population will overtake China by 2030

% share in Global merchandise exports China 531

75.0%
Working age population
70.0% as % of Total Population
20% Thailand 447
China India 15% Malaysia 431 65.0%
15%
Indonesia 360 60.0%
10% Philippines 272
55.0%
5%
In d ia 265 Manufacturing
50.0%
2% Vietnam 250 wages (USD / month)

1950
1955
1960
1965
1970
1975
1980
1985
1990
1995
2000
2005
2010
2015
2020
2025
2030
2035
2040
0% Cambodia 222
1961
1964
1967
1970
1973
1976
1979
1982
1985
1988
1991
1994
1997
2000
2003
2006
2009
2012
2015
2018
2021

150 300 450 600 China India

Source: World Bank Source: UN Population database

35
22
Unorganised share in India is large
1

Sector Unorganised share Source

Plywood 75% Greenply Company Presentation 1Q23

Air Coolers 70% Symphony Annual report FY21
Pipes 35% Astral Annual report FY22
Laminates 38% Greenlam Analyst Presentation 2022
Plastic Tanks 70% Astral Annual report FY22
Footwear Retail 69% FY20, Metro DRHP, Crisil Research
Coconut Oil 30-35% FY21, Marico Information update
Paints 33% FY20, Indigo Paints DRHP
Food and Grocery 96% FY20, Mrs. Bector Food DRHP, Technopak report
Jewellery 68% FY20, Mrs. Bector Food DRHP, Technopak report
Apparel and Accessories 68% FY20, Mrs. Bector Food DRHP, Technopak report
Home & Living 85% FY20, Mrs. Bector Food DRHP, Technopak report
Food Service Market 59% FY20, Mrs. Bector Food DRHP, Technopak report

36
India – Banking
Nature system relatively better placed
of cycles…
1

Banking system - in good health with adequate capitalization and end of corporate NPA cycle.

Credit growth is weak due to good corporate profitability and deleveraging. Higher inflation, low debt / equity ratio
of corporates and broad based revival in corporate profitability should lead to improved credit growth going forward.

Interest rates - Difference between India and US yields remains reasonable and thus, eases pressure on capital flows
into India

NNPA% System Capital Adequacy Credit Growth %

10.0%
18.0
40%

16.8
16.3
17.0
35%
7.5% 16.0

14.7
6.0%

30%

14.5

14.3
14.2
14.2
15.0

13.9
5.3%

13.8
13.6
25%

13.3
14.0

13.0
13.0
4.4%

5.0%
13.0 20%
3.7%
2.8%

12.0 15%
2.4%

2.4%
2.2%
2.1%
1.7%

2.5% 11.0 10%

1.%3
1.1%
1.0%

10.0 5%
9.0
0.0% 0%
8.0

Jun-20
Jun-10

Jun-22
Jun-18
Jun-16
Jun-14

Jun-19
Jun-15
Jun-13
Jun-12

Jun-21
Jun-17
Jun-11
2020

2022
2010

2018
2014

2016

2019
2015

2021
2013
2012

2017
2011

2018
2011
2010

2016
2015

2021
2014

2019
2012

2020
2013

2017

2022
Source : RBI, Investec
37
22
Nature of– cycles…
Housing Better prospects
1

Over the past two decades, house affordability has improved Affordability ratio (Home loan payment / Income ratio)
and is close to decadal best 60 (%) 56 58
53
50 50 48
49
50 44 44
With India Inc. moving towards a hybrid work model 40 36
38 37 38
35
34 34 33 33
(Office + WFH), demand for home improvement sector is 30
31
28 27 30
27 28
31

likely to get a boost 20

Improving affordability, rising employment, and rise in 10

wealth due to the rise in stock markets, etc. is positive 0

FY23 @8.5%
FY23 @9.5%
FY23 @7.5%
FY08
FY06
FY04

FY09
FY05
FY03
FY02

FY20
FY07
FY01

FY10

FY22
FY18
FY16
FY14

FY19
FY15
FY13
FY12

FY21
FY17
FY11
for real estate demand

Real estate volumes have picked up and the trend is likely to

sustain in the near term
Increased transparency on account of RERA has renewed 200% New Launches, YoY% New Sales, YoY%
buyer confidence 150%
100%
Consolidation and formalisation of sector an emerging trend 50%
0%
-50%
Housing is an important part of Gross capital formation -100%

and its revival should support faster growth

1Q09
3Q09
1Q10
3Q10
1Q11
3Q11
1Q12
3Q12
1Q13
3Q13
1Q14
3Q14
1Q15
3Q15
1Q16
3Q16
1Q17
3Q17
1Q18
3Q18
1Q19
3Q19
1Q20
3Q20
1Q21
3Q21
1Q22
38
22
37
Private capex
Nature of outlook
cycles…
1

Broad based improvement in profitability across major manufacturing sectors like metals, cement, sugar, textile,
chemicals, paper, etc.
Conducive environment for private capex
Corporate leverage is near 10 year low
Improved competitiveness vis –a – vis China
Rising interest of global MNCs to set up manufacturing driven by China plus one policy
Supportive government policies and thrust on “Aatmanirbhar Bharat”

NSE 500 Capex to GDP % 25

State capex Centre capex Listed corporates capex 1.10 (x)

0.99
6% 1.00
20 Combined capex of govt. and listed corporates
5% rising from Rs10-12 trillion range Deleveraging cycle
to >Rs 21 trillion range in FY23 7.1 0.90
5%

Capex (Rs trillion)

4% 15 6.3 6.3
6.3 0.80
4% 0.71
5.5
3% 10 6.3 5.5 7.5 0.70
5.2 5.3 6.0
3% 4.6 5.9 6.6
5.3 4.7
5.9 5.6 5.2 4.3 0.60
2% 5 2.9 2.6 3.1 3.4
4.2 2.5
2% 1.6 1.7 1.9 2.0 5.3 5.2 6.3
6.7
1.1 1.6 3.9 3.8 4.2 3.9 4.1 0.50
1% 2.7 3.3
1.4 1.5 1.8 2.0 2.2
0
FY08

FY09

FY20

FY22
FY10

FY18
FY16
FY14

FY19
FY15

FY21
FY13
FY12

FY17
FY11

FY20
FY10

FY22
FY18
FY16
FY14

FY19

FY23E
FY15

FY22E
FY13

TTM
FY12

FY21
0.40

FY17
FY11

FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21 FY22E

Source: CEIC, Capitaline ICICI Securities

39
22
Nature of
Startup ecosystem
cycles… in India
1

Indian startup ecosystem has seen significant progress over the past few years and has become
a critical growth driver for India Name of Startups Period to become Unicorn

India has overtaken China in number of new unicorns* in 2021 Naukri, Makemytrip 20 years
Crackdown on China tech sector has possibly impacted start-up funding in China
Zomato, Flipkart and Policy bazaar 8 to 10 years
Investments in startups have been increasing despite pandemic on back of rising digital
Nykaa and Oyo 5-6 years
penetration and availability of risk capital
Journey of becoming a Unicorn has become shorter Udaan and Ola Electric 3 years

Estimates suggest that number of Indian startups is set to nearly double to 1 lakh over next
4 years and start ups could employ over 3.25 million people Source: An article published in Feb 2021 on Yahoo.com

Yearly new Unicorns - India Vs China Investment in startups (USD Bn)

40 34.5
40
33 31 33
30 27 30
24
India China 21
17 19
20 16 20 14.8
11.3 12.8
8 8.5 7.6
10 5 10 5.4
12 00 01 13 2 3 2 3.9
1.6
0 0
11 12 13 14 15 16 17 18 19 20 21 2013 2014 2015 2016 2017 2018 2019 2020 2021

Source: Article by Hindu business line published on 20 Oct 2021 Source: 3one4 Capital report

Availability of big talent pool, large market and risk capital bode well for startup ecosystem

*Unicorns are referred to private firms valued at USD 1 billion or more

40
22
India
Nature- of
Well poised versus other economies
cycles…
1

Structural tailwinds of demand, digitisation, demography and democracy hold India in good stead
Amidst various challenges, GDP growth still expected to be higher than most economies
Relatively low leverage should minimize the impact of tightening monetary policies and reversal in
interest rate cycle

GDP Growth Projection % (IMF) Debt to GDP %

350
China India Advanced economies Emerging market economies
8

7 6.8 300
6.1 2022 2023
6
250
5 4.4
4 3.7 3.7 200
3.2 3.2
3 2.7
2.4 150
2
1.1 100
1

0 50
India China Advanced Emerging market World

Dec-01

Dec-02

Dec-03

Dec-04

Dec-05

Dec-06

Dec-07

Dec-08

Dec-09

Dec-10

Dec-11

Dec-12

Dec-13

Dec-14

Dec-15

Dec-16

Dec-17

Dec-18

Dec-19

Dec-20

Dec-21
economies and developing
economies

Source: IMF Source:BIS

41
22
Nature ofterm
Medium cycles…
issues / Risks
1

Elevated commodity prices – supply constraint, Ukraine, Deflationary impact of China’s manufacturing is fading
Demand recovery, China Large fiscal and monetary stimulus in response to
$10/bbl increase in oil impacts CAD by $13-15b pandemic to support demand
Geopolitics

160
Bloomberg Commodity Index 20 US Retail Inflation %
15
140
120 10
8.2
100
5
80
60 0
40
-5

Sep-02
Sep-82

Sep-92

Sep-07
Sep-87

Sep-22
Sep-97
Sep-72

Sep-12
Sep-77

Sep-17
Sep-12

Sep-13

Sep-14

Sep-15

Sep-16

Sep-17

Sep-18

Sep-19

Sep-20

Sep-21

Sep-22
15
US 10Y G-Sec Yield % 10 8.9 Fiscal Deficit (% of GDP)
8 7.1
10
6
5 4 3.5 3.0
2
0
Sep-72

Sep-77

Sep-82

Sep-87

Sep-92

Sep-97

Sep-02

Sep-07

Sep-12

Sep-17

Sep-22
0
AE EM
2011-19 2020-21

Source : IMF Data, Kotak Institutional Equities, Bloomberg

42
22
Nature
Unwinding
of cycles…
of dovish monetary policies
1

Ultra-loose monetary policies post GFC 2008

Benign interest rates and substantial liquidity infusion post pandemic supported asset prices
Unwinding of dovish monetary policies to counter inflation could weigh on equity valuations
Higher interest rates and consequently, higher cost of capital could impact profitability of levered companies

Central Bank Balance sheets as % of GDP G3 Change in Balance Sheet Size (USD Bn)
60% 57% 10000
US EU 8,027
50% 8000
38% 6000
40% 33% 4000 2,085
30% 2000
19%
20% 0
-2000
10% -1,550
-4000
0%

1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
CY19 CY21

Source : Bloomberg Source : Bloomberg, 2022 CYTD upto 31-July-2022

Global Negative Yielding Debt (USD Trillion) Central Bank Policy actions
20 100%
80% Central Banks with Rate Cuts

% of Central Banks
15
60% No Change
10 40% Central Banks with Rate Hikes

5 20%
0%
-

2008
2009

2020
2010

2022
2018
2016
2014

2019
2015
2013
2012

2021
2017
2011
Jul-17 Jul-18 Jul-19 Jul-20 Jul-21 Jul-22

Source : Bloomberg, As of 31st July 2022 Source : BIS As of 30-Jun -2022

43
22
Equity Market
Nature Valuations
of cycles…
1

Nifty 50 Valuations (P/E)

Historical Valuations : NIFTY50
30

1 Year forward P/E : NIFTY 50 Avg Mean+1SD Mean-1SD

25
1 Year Forward P/E

20.9
20

15.9
15

NIFTY50 1 Yr Fwd P/E

10 10 Yr Average 17.6
Current 20.9
5

Oct-20
Oct-18
Oct-14

Oct-16

Oct-19
Oct-15
Oct-13
Oct-12

Oct-21
Oct-17
Source: Bloomberg, As of October 21, 2022.
Nifty50 Index close on October 21, 2022: 17576.30
44
22
Product
Nature ofLabelling
cycles…
1

HDFC Business Cycle Fund (An open ended equity scheme following business cycle Riskometer #
based investing theme) is suitable for investors who are seeking*:

To generate long-term capital appreciation/ income

Investment predominantly in equity & equity related instruments of business
cycle based theme

*Investors should consult their financial advisers, if in doubt about whether the
product is suitable for them.
# The product labeling assigned during the NFO is based on internal
assessment of the scheme characteristics or model portfolio and the same may vary
post NFO when the actual investments are made.

45
22
Product
Nature ofLabelling
cycles…
1

NAME OF THE SCHEME(S) THIS PRODUCT IS SUITABLE FOR INVESTORS WHO ARE SEEKING* RISKOMETER OF THE SCHEME(S)#

HDFC Hybrid Debt Fund To generate long-term income/capital appreciation

(An open ended hybrid scheme investing Investments primarily in debt securities, money market
predominantly in debt instruments) instruments and moderate exposure to equities

ate Moderate
Moder H igh
ly
t o te Hi
w era
HDFC Asset Allocator Fund of Funds

ModLo
Capital appreciation over long term

gh
(An open ended Fund of Funds scheme investing in Investment predominantly in equity oriented, debt oriented

Very
High
Low
equity oriented, debt oriented and gold ETFs schemes) and Gold ETF schemes.
RISKOMETER

*Investors should consult their financial advisers, if in doubt about whether the product is suitable for them.
# For latest riskometer, investors may refer to the Monthly Portfolios disclosed on the website of the Fund viz. www.hdfcfund.com

46
22
Product
Nature ofLabelling
cycles…
1

NAME OF THE SCHEME(S) THIS PRODUCT IS SUITABLE FOR INVESTORS WHO ARE SEEKING* RISKOMETER OF THE SCHEME(S)#

HDFC Housing Opportunities Fund Capital appreciation over long term

(An open ended equity scheme following housing and Investment predominantly in equity and equity related
allied activities theme) instruments of entities engaged in and/ or expected to benefit
from the growth in housing and its allied business activities.

HDFC Infrastructure Fund To generate long-term capital appreciation/income

(An open-ended equity scheme following investment predominantly in equity and equity related
infrastructure theme) securities of companies engaged in or expected to benefit
from the growth and development of infrastructure

HDFC Banking & Financial To generate long-term capital appreciation/ income

Services Fund Investment predominantly in equity & equity related
(An open ended equity scheme investing in Banking instruments of banking and financial services companies.
and Financial Services Sector)

HDFC Flexi Cap Fund To generate long-term capital appreciation / income

(An open ended dynamic equity scheme investing Investment predominantly in equity & equity related instruments
across large cap, mid cap, small cap stocks)

HDFC Balanced Advantage Fund To generate long-term capital appreciation / income

(An open ended balanced advantage fund) Investments in a mix of equity and debt instruments

*Investors should consult their financial advisers, if in doubt about whether the product is suitable for them.
# For latest riskometer, investors may refer to the Monthly Portfolios disclosed on the website of the Fund viz. www.hdfcfund.com

47
22
Disclaimer
Nature of cycles…
1

This presentation dated 1st November, 2022 has been prepared by HDFC Asset Management Company Limited (HDFC AMC) based on internal
data, publicly available information and other sources believed to be reliable. Any calculations made are approximations, meant as guidelines
only, which you must confirm before relying on them. The information contained in this document is for general purposes only and not an
investment advice. The document is given in summary form and does not purport to be complete. The document does not have regard to
specific investment objectives, financial situation and the particular needs of any specific person who may receive this document. The
information/ data herein alone are not sufficient and should not be used for the development or implementation of an investment strategy. The
statements contained herein are based on our current views and involve known and unknown risks and uncertainties that could cause actual
results, performance or events to differ materially from those expressed or implied in such statements. Past performance may or may not be
sustained in future. Stocks/Sectors referred in the presentation are illustrative and should not be construed as an investment advice or a
research report or a recommended by HDFC Mutual Fund / AMC. The Fund may or may not have any present or future positions in these sectors.
HDFC Mutual Fund/AMC is not guaranteeing / offering / communicating any indicative yield on investments made in the scheme(s). The data/
statistics are given to explain general market trends in the securities market, it should not be construed as any research report/research
recommendation. Neither HDFC AMC and HDFC Mutual Fund nor any person connected with them, accepts any liability arising from the use of
this document. The recipient(s) before acting on any information herein should make his/her/their own investigation and seek appropriate
professional advice and shall alone be fully responsible / liable for any decision taken on the basis of information contained herein.

MUTUAL FUND INVESTMENTS ARE SUBJECT TO MARKET RISKS,

READ ALL SCHEME RELATED DOCUMENTS CAREFULLY.

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22