Yes, you have read it correctly. India’s largest mutual fund is coming out with its own IPO and we have strong reasons to believe that it is a good long term investment. HDFC group has touched us in many ways – either through its bank account or its home loan or its insurance products or its mutual funds. Each of these businesses (bank, home loan & insurance) have created immense wealth for its shareholders and this IPO will be no different.
Investment Arguments
1. Lowpenetration of equity gives a long runway for growth –
A typical Indian household has 80% of their wealth in physical assets like land, house or gold. Of the remaining 20% which is in financial assets, 85% in into traditional products like fixed deposits, NSC, KVP offered by India Post, PPF, LIC, etc. That leaves a minuscule 3% towards equities, which is one of the lowest in the world. Now that real estate & gold have started losing its sheen, huge shift is happening in the savings pattern of India. Also, basic financial literacy has enabled young Indians to view equities without the baggage of past. These tailwinds will enable trusted brands like HDFC to post double digit growth for many years to come.
2. Most profitable AMC –
Ever wondered how your mutual fund company makes money? They deduct 1.5% to 2.5% of your NAV directly from your portfolio. This money is used by them to pay their distributors / agents who get them the customers and hire fund managers to manage your money. Thanks to the strong brand and distribution network, HDFC Mutual Fund has become India’s most profitable mutual fund.
3. Attractive Valuation –
At the upper end of the price band, HDFC AMC is valued at 32x on last year’s earnings. While this may not look optically cheap, the strong growth expected in coming years will ensure good returns for its shareholders. HDFC MF grows if it acquires new customers, if the same customer puts in more money and if there is an increase in the value of the stocks owned. Hence, there is ample room to grow the earnings.
Issue Details
| Open/Close Date |
25th July/ 27th July |
| Issue Price (Rs.) |
1,095 – 1,100 |
| Market Lot |
13 shares |
| Minimum Application Size for Retail (Rs.) |
14,300/- |
Trivia
We are happy that many of you have started your equity journey in a small way. Stocks have created huge wealth over the past twenty years, but unfortunately a large part of the benefit has accrued to foreign investors. HDFC group has created US$150bn of wealth over the past thirty years but ~65% of it belongs to foreign investors! An external observer may surmise that foreign investors have more faith in the Indian economy and India companies than Indians themselves.
