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Mutual Fund Review: HDFC Growth

 

 

Savvy stock selection has helped the fund emerge as a good long-term bet

 

This fund may not have had a smooth ride but has emerged as one of the better players in this category.

 

After an uneventful start in its initial years, the fund began to get noticed in 2006, when the current manager assumed charge. It turned out to be a category outperformer over the following years and even contained the downside well in 2008.

 

Savvy sector selection has been a testament to Srinivas Rao Ravuri's skills. In 2006, while his peers were neutral towards Healthcare, the fund's increased allocation to it on the back of concentrated bets in Sun Pharma and Divi's Laboratories helped. Similarly, the fund defied popular trend and pruned allocation to Financial Services while increasing it to Automobiles.

In 2007, the fund was more into Healthcare and Basic-Engineering while its peers were into Metals. As the category as a whole increased exposure to diversified companies, this fund moved out of them altogether. A similar pattern followed in 2008.

But in 2009, the fund lagged behind with a return of 75 per cent (category average: 83%). The recovery caught Ravuri off guard. Despite the equity market starting its upward journey in March 2009, the fund barely lowered exposure to defensive sectors (Healthcare and FMCG) last year. Besides Tisco or Infosys, he kept away from Metals or IT. To add to it he held an average 12 per cent in cash for the three months ended July 2009. "I was focussed on companies that depend on domestic demand and have strong balance sheets. I was cautious on sectors dependent on the global market recovery," he says. "Commodities are extremely volatile and prices were dependent on economies in Europe and China. In IT, I was wary of exposure to companies that got the bulk of their revenues from the global financial services sector."

 

Besides sector bets that set him apart, he also has holdings in stocks which are not too popular, such as C&C Constructions, Solar industries, Ahmednagar Forgings, KNR Constructions and Technocraft Industries India. "Since I am also an analyst and we have a strong research team, we are capable of coming up with good stock ideas that are not covered by broking firms. Stock selection is based on attractiveness of business, quality of management and valuations," he says. The small size of his fund helps by allowing greater flexibility.

 


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