What Made HDFC Manufacturing Fund The Third Largest Fund Launch Ever In India
The record demand was seen as the 'Make in India' theme remained at the forefront of investible ideas ahead of the Lok Sabha elections and the final budget.
HDFC Manufacturing Fund became the country's third largest new fund offering after receiving Rs 9,563 crore in its launch month, accounting for close to half of the net flows received in the sectoral and thematic categories.
The record demand was seen as the 'Make in India' theme remained at the forefront of investible ideas ahead of the Lok Sabha elections in June and the final budget in July.
The fund also benefited from investors who had been aiming to capitalise on the street's positive sentiment ahead of the election but had made no new offerings recently.
"No new offerings had been made in over two months," noted Mohit Gang, co-founder and chief executive officer at Moneyfront. "With the result of the elections approaching, an expectation of continuation of policy that has been in favour of the manufacturing theme, the fund saw strong demand from investors," he said.
The fund was also the first offering by the house in nearly one year, following the launch of HDFC Defence Fund in June 2023, which has given a return of 130% since then.
Top performing funds of fiscal 2024 had also come from the sectoral/thematic category, with average returns of the top five schemes being over 100% over a one-year period to-date.
With 86% of its holdings invested, nearly 80% are held among large cap stocks, according to Value Research data. With a considerable majority of its allocation in the large cap universe, a comparison may be drawn to the fund house's scheme for the category—HDFC Top 100 Fund.
Among the top 10 stocks, the newly-launched HDFC Manufacturing Fund held a smaller part of its total holdings at 39.4% as compared to the blue-chip HDFC Top 100 Fund with 58% holding.
A Contrarian View
Despite figures pointing to greater diversification, the sum of cash still has to be deployed, noted Dhirendra Kumar, founder and chief executive at Value Research. Initial demand may be misguided, according to him.
"Fund houses have come into a habit of creating funds which are easy to sell, based on a story. PSUs have doubled last year, but that's after a long period of struggle. Look at 2018 when the SBI PSU Fund fell as much as 22%," he said.
The fund is still in its nascency, and not fully deployed its holdings. Therefore, it cannot be said that it has a greater degree of diversification, according to Kumar.
"In India, any large fund has about 70% of its holding in manufacturing or related companies. Why would one invest in only a manufacturing fund, and concentrate their holdings in one theme and increase the risk?"
Over a three-year period, a flexi cap fund will generate higher returns than a manufacturing fund, according to Kumar.
Diversification may preserve wealth, but concentration builds wealth.Warren Buffet
"For that, one has to be Warren Buffet," replied Kumar to the veteran investor's adage.
Sectoral And Thematic Schemes On The Rise
The seventh scheme by the fund house in sectoral and thematic funds pushed the category to the second highest on the basis of total assets under management, from the fourth position in April.
It crossed large cap and mid cap fund categories, and is now second only to flexi cap funds.
Total assets under management grew 72% for funds in the category during FY24, showing the third highest growth behind multi cap, and small cap funds, for which it grew 85.2% and 82.5% respectively.
Does Popularity Mean Performance?
With clear linkages to a sector claimed to be at the forefront of the 'India Growth Story', the fund received flows matching the manufacturing theme's popularity.
However, does a trend of popularity at launch also translate to returns higher than their peers?
Among the list of the new fund offering that garnered the highest amount of flows upon launch, two funds gave returns below the category average, with one just marginally above.
