HDFC Growth gets a Silver rating

Morningstar's analyst is convinced that it is a strong offering for an investor.
By Himanshu Srivastava |  23-02-17 | 
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About the Author
Himanshu Srivastava is a Research Analyst with Morningstar. He would like to hear from you, but cannot give financial advice.

The fund remains a strong choice for investors.

Manager Srinivas Rao Ravuri continues to do what we have come to expect of him--look for quality names with sustainable advantages using a research-intensive approach, which comes naturally to him as a result of solid experience as a research analyst spanning more than 11 years before taking charge of this fund in April 2006.

Ravuri combines top-down and bottom-up approaches, with the latter being significantly more important. He looks for companies with strong business models and sustainable advantages. A long-held investment in Solar Industries typifies the approach. Ravuri bet on the explosive manufacturer’s technological and sales prowess coupled with the high barriers to entry into the business and has been rewarded over the long haul.

The process has its caveats, though. Ravuri is valuation-conscious, which with an inherent long-term orientation means he will take short-term pain for long-term gain. For instance, he kept his faith in State Bank of India in 2013 even though its fluctuating fortunes (following a rise in nonperforming assets and poor results) hurt the fund’s performance. Further, in a downturn, his policy of staying fully invested may lead to underperformance versus peers that get their cash calls right.

Apart from avoiding areas of the market he considers expensive, the manager will also back his best ideas with conviction. The strategy can result in investments that go against the norm over shorter periods. For instance, investing in certain out-of-favour public sector names, while steering clear of select technology and healthcare companies that Ravuri deemed expensive, contributed to the fund’s poor showing in 2013.

However, we believe the approach can hold the fund in good stead over the long haul. Indeed, on the manager’s watch (April 2006 to December 2016), the fund has delivered a strong showing, besting both the S&P BSE Sensex Index and the category average. Our conviction in the fund’s long-term potential remains unchanged.

We reiterate our Morningstar Analyst Rating of Silver.

  • Category: Large Cap
  • Fund Manager: Srinivas Rao Ravuri
  • Star Rating: 4 stars
  • Analyst Rating: Silver
  • Investment Style: Large Growth
  • Turnover: 21%
  • Expense Ratio: 2.49%
  • Minimum Investment: Rs 5,000
  • Strategy: The fund manager invests over 80% of assets in large-cap stocks. He typically looks for growth-oriented quality stocks that are reasonably priced.
  • Return: The fund hit a rough patch in 2013, but bounced back. It's impressive 10- and 15-year annualised returns prove that it does reward long-term investors.
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