HDFC Asset Management Company Ltd - Information Note

HDFC Asset Management Company Ltd - Information Note
by Nikita Bhoota 24/07/2018

This document summarizes a few key points related to the issue and should not be treated as a comprehensive summary. Investors are requested to refer the Red Herring Prospectus for further details regarding the issue, the issuer company and the risk factors before taking any investment decision. Please note that investment in securities is subject to risks including loss of principal amount and past performance is not indicative of future performance. Nothing herein constitutes an offer of securities for sale in any jurisdiction where it is unlawful to do so. This document is not intended to be an advertisement and does not constitute an invitation or form any part of any issue for sale or solicitation of an offer to subscribe for or purchase any securities and neither this document nor anything contained herein shall form the basis for any contract or commitment whatsoever.

Issue Opens: July 25, 2018
Issue Closes: July 27, 2018
Face Value: Rs 5
Price Band: Rs 1,095-1,100
Issue Size: ~Rs 2,800 cr
Public Offer: ~2.55 cr shares

Reservation

  1. HDFC AMC Emp-3.2lakh shares
  2. HDFC Emp- 5.6 lakh shares
  3. HDFC Shareholder-24lakh shares

Net Offer-2.22cr shares

Bid Lot- 13 Equity shares              

Issue Type- 100% Book Building

% shareholding

Pre IPO

Post IPO

Promoter

94.95

82.94

Public

5.05

17.06

Source: RHP

Company Background

HDFC Asset Management Company Ltd (HDFC AMC) has been the most profitable asset management company in India in terms of net profit since FY13, according to CRISIL. It operates as a joint venture between HDFC Ltd. and Standard Life Investments Ltd. As of March 31, 2018, (a) equity-oriented AUM and non-equity-oriented AUM constituted Rs1,49,713cr and Rs1,42,273cr respectively of its total AUM; (b) its market share of total AUM was 13.7% among all asset management companies in India, according to CRISIL.

Objects of the Issue

The offer consists of an Offer for Sale of up to 2.55cr equity shares.

Financials

Consolidated Rs Cr

FY15

FY16

FY17

FY18

Revenue from operations

1,022

1,443

1,480

1,760

Growth (%) yoy

19.1

41.1

2.6

18.9

EBITDA

591

668

704

966

EBITDA margin (%)

57.8

46.3

47.6

54.9

Reported PAT

416

478

550

722

EPS-Diluted (`)

20.3

23.6

27.1

35.0

RoNW (%)*

41.1

42.1

42.8

40.3

Source: RHP, Company, 5paisa Research, (EBITDA = Revenue from operations – Employee benefit exps – Other exps)

Key Points

  1. It has been a leader in the Indian mutual fund industry as demonstrated by its leading position across key industry metrics. It has consistently been among the top two asset management companies in India in terms of total average AUM since August, 2008, according to CRISIL. Its proportion of equity-oriented AUM to total AUM was at 51.3%, which was higher than the industry average of 43.2%, as of March 31, 2018, according to CRISIL.

  2. It offers a wide range of investment schemes across asset classes catering to various risk return profiles, many of which have recorded strong and consistent performance compared to industry benchmarks. Its diversified product mix enables it to cater specific customer requirements and reduce concentration risk. As of March 31, 2018, it served customers in over 200 cities through Pan-India network of 209 branches (and a representative office in Dubai).

Key Risk

The performance of its scheme is important to retain existing customers as well as attract new customers. The performance of its scheme is dependent on general market conditions and existing competition in the market. Poor investment performance, either on an absolute or relative basis, could impair revenue.

Research Disclaimer
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Secrets of successful trading

Secrets of successful trading
01/08/2018

People who are new to stock markets are often enthusiastic about trading and look for quick and easy ways to become rich. These factors usually restrict their understanding of the market, and they lose out on tactics of trading. Below are ten trading secrets for the newbie traders.

1. Limit the capital investment

Most of the beginners are eager to earn quick money. They have a perception that investing a lot of money during initial days can help them earn money. The most valuable tip for any beginner is that he should spend a limited amount of money as capital initially. It is better to set a percentage limit to the capital invested in one company or trade.

2. Do not expect early profits

The mindset of most of the beginners is to earn short term gains. It acts as a hindrance in rational decision making. Hence, beginners should make sure that they carry the right attitude for trading, not expecting quick profits.

3. Keep a trading journal

Staying updated with recent events and news is essential in the stock market. Trade journals are the best source for gaining knowledge. A trader should get into the habit of reading these journals and relate them to their daily trading.

4. Risk analysis

Risk analysis is critical to evaluate which stocks or securities should an investor invest in. Beginners tend to give less importance to risk analysis. Hence, they are not aware of the impact of loss in trading. It is imperative for traders to understand risk management right from the very beginning so that they can hedge losses.

5. Invest time to understand different techniques

People who start to learn trading are familiar with limited techniques. They become complacent with this procedure and fail to learn new methodologies. To be a successful trader, it is a must to evolve different skills and techniques.

6. Avoid penny stocks

Penny stocks are traded on the stock exchanges and provide high return along with high risk. These stocks have a small market capitalization and lack liquidity. New traders should be cautious of these stocks as they can easily get tempted to buy these stocks in order to earn high returns.

7. Control over emotions

It is very common for beginners to get carried away by emotions. It restricts their rational thinking and they lose focus on their trades. One needs to be in control of emotions irrespective of profits or losses.

8. earn the basics first

A lot of people start trading without actually knowing the basics of the stock market. They are not aware about how the market functions. Lack of knowledge narrows the focus of trader to a single strategy which he is aware of.

9. Avoid leverage

It is always advisable to not use the leveraged money (borrowed) while investing. It increases the price of trading and limits the understanding of the trader.

10. Diversification

Diversification is the process of investing in different instruments in order to minimize risk. It is useful for beginners who lack knowledge about specific sectors. It is always wise to diversify your investments across different sectors and industries. 

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How long should long-term be in investing?

How long should long-term be in investing?
02/08/2018

You would have often come across advertisements suggesting that lazy vacations or travel abroad is possible through long-term investments. They might be a lucrative option for many, but most people would still be confused by what constitutes a long-term investment? Investing in order to take care of the expenses of a marriage may take 5 years, while investing for a house may take 15 years and children’s college fees can possibly take nearly 20 years. All these are examples of long-term investments of varying lengths.

The textbook definition

For taxation purposes, investments in listed stocks and equity mutual funds are considered to be long-term if the holding period is more than one year. The holding period is defined as the period from one day after the investment has been made to one day after the investment has been encashed.

The ground reality

Going by the book, any investment above one year is a long-term investment. However, this definition could be quite inadequate for practical purposes. Most investors would look at a long-term investment as a way to even out losses and maximise gains. In fact, long-term investments are preferred because they help us to ride out the investment cycles and achieve parity, if not profit.

The bottom-line

Most analysts would agree that a better definition of a long-term investment would be “An investment that has a higher probability of maximising returns over a 10-year period as compared to alternatives.

To support this, you can draw upon some hard-hitting research on the basis of BSE data. Using this, you can also find a median which you can use a benchmark.

Before you begin, let’s take a couple of parameters into consideration-

  • Growth isn’t permanent. Disruptive companies continue to create ripples until bold becomes the new normal.

  • When things get worse, they usually don’t stop until they hit rock bottom. Rebounds are rare.

  • All data considered are for capital aggregation investments. Income generation schemes such as bonds, debentures, etc are not as influenced by time, as by interest rates.

  • FDs and other fixed return investments are not dependent on time as well, and so are ignored.

  • Let us first define some popular investment return targets. Let us choose the figures for 8%, 10%, 12%, 15%, and 16.2%-the last one being average market return for last 33 years.

  • The data taken into consideration uses month-end values for Sensex from April 1979 to October 2012. 

The probability of achieving these returns within a time period comes to something like this:

Year

Probability of achieving 8% returns

Probability of achieving 10% returns

Probability of achieving 12% returns

Probability of achieving 15% returns

Probability of achieving 16.2% returns

3

36%

58%

53%

50%

48%

4

31%

64%

59%

53%

52%

5

29%

68%

63%

56%

53%

6

23%

72%

66%

61%

59%

7

21%

76%

74%

66%

62%

8

20%

78%

74%

67%

61%

9

19%

78%

76%

68%

64%


The six-series’ mentioned in the graph are in order of the six rates of investments that have been set as targets.

This takes into consideration some high-performing and a low-performing stock. And as can be seen from our initial premise, the investments top out around the 10-year period.

Statistically speaking, a period of more than 10 years may be considered only for academic interest as a decade is really as far as you can see.

From analysis, you can notice the following facts-

  • The high-performing stocks started to peak after the 5-year mark.

  • They continued an appreciable rate of growth till they crossed the 7-year threshold.

  • After the 7-year threshold, they flattened out to a plateau.

  • The low-performing stock, on the other hand, continued to drop steadily.

  • The dip became more and more pronounced after the 7-8-year time period.

  • Thus, you can take an optimum measure of the 6-7-year period as the best median in which to invest for the “long-term”.

In general, a 10-year cycle would help us to reach a plateau after which our stocks’ value would either fall or remain constant. Within this phase, it’s better to cash out in the 6-7-year period and invest in the next big thing.

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Benefits of auto investing at the start of each month

Benefits of auto investing at the start of each month
03/08/2018

Investing is an excellent habit that assists us secure our future. Investors can be broadly divided into two categories: those who rely on the traditional method of investing the amount available with them at the end of each month, and then there are others who have it auto debited directly from the bank account at the start of each month.

However, experts conclude that the person who auto invests at the beginning of every month is a better saver than the one who invests from available corpus at the end of the month. Therefore, if a person wants to secure their financial status, auto investing is the way to go about it.

The top benefits of auto-investing are:

It requires you to categorize your expenditure

Saving or investing after you’ve met your monthly expenses is not advisable. This is because if you spend first and save later, you will be unable to direct a uniform amount towards this corpus. In any case, savings should be deducted from the income before expenses are met. Here, drawing up an expenditure chart at the start of every month would be practical. This would help strike off unwanted spending from the budget planning, and bring the necessary expenses on the critical list. Also, one should set aside 10% of the income for emergency expenses apart from the investment amount. Hence, it is prudent to draw up your expenses, including emergency funds, and then invest a fixed amount regularly at the start of the month.

Inculcates the habit of saving

Investing a set amount every month inculcates the habit of saving in an individual. Moreover, this also motivates one to look for ways to save from their expenditure budget. This is a triple advantage as one gets to set aside an investment amount, save emergency funds, as well look for ways to cut down on expenses. If there are any unnecessary expenses, the emergency amount comes into play. After a while, even that habit will stop.

Instills discipline

Even if a person manages to save regularly at the end of each month, there may arise a situation which would require him to use his investment amount, thus, breaking his habit. For example, an unforeseen emergency could occur that would require extra funds. Although the emergency would be a more important matter to attend, it would come in the way of that month’s savings. If the person had already extracted his savings, his habit would have been regular and unaffected. This would have ensured his financial planning. Therefore, auto investing at the start of each month instills discipline in the individual as he/she learns to manage from the funds they have set aside for expenses.

Reduces risk factor on investments

Investing in auto mode helps you ride market-related risks smoothly. When a person invests a lump sum amount in a single go, they run a risk of either an enormous loss or vice versa. As the outcome is highly unpredictable, this method is inadvisable. Regular investments through a Systematic Investment Plan (SIP), where a predefined amount is automatically deducted at a predefined time each month, provides you with the benefit of avoiding such risks. When investing in market-related investments, it is a smart practice to fund the amount regularly so that it remains safe from market fluctuation, is balanced out, and the investment grows profitably. In this manner, your wealth-building goals will be met quite effortlessly.

Thus, the advantages of auto investing at the beginning of each month outweigh the benefits of investing at the end of each month. Start an SIP model to grow your wealth and enjoy guilt-free spending of your hard-earned money.

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How To Open A Demat Account?

How To Open A Demat Account?
05/08/2018

If you want to start trading or investing in the stock markets, you will need to open a demat account. Opening a demat account involves a small and easy, four-step procedure. Before understanding the process of opening a demat account, it is very important to know its basics.

A demat account stores shares in a dematerialized (electronic) form unlike the physical shares that used to be issued previously. These are stored with a depository participant (DP), who is either associated with the NSDL (National Securities Depository Ltd.) or the CDSL (Central Depository Services Ltd.).

How to Open Demat Account

You have to Follow below steps in order to open a demat account:

Step 1: Look for a depository participant: The first step to open a demat account is selecting a suitable depository participant (DP). A DP could be a bank, a broker, or an online investment platform. Make sure that the DP you choose fulfills the necessary criteria and matches your requirements. To compare between different DPs, you could look for the list and other details on the CDSL and NSDL websites.

Step 2: Fulfill the KYC formalities: To register yourself with the DP and to open a demat account, it is very important to complete the KYC (Know your Customer) formalities. KYC formalities include submission of a duly filled application form along with the copies of required documents

Step 3: Perform verification: Once the application form is submitted along with the KYC documents, you might be required to be present at the DP’s office in person in order to check the authenticity of the KYC by performing verification.

Step 4: Acquire Beneficiary Owner Identity (BOID): Once the DP has processed the application, a unique Beneficiary Owner Identity, commonly known as BOID, is generated. You need to acquire this BOID in order to make transactions and to be able to access your demat account in the future.

If you are looking to trade in the share market on an intraday basis, you would also be needing a trading account.

Documents Required for Demat Account

Here is the list of documents generally required (for KYC) while opening a demat account:

Proof of Identity: You would require copies of any of the following as a proof of identity.

  • Voter's ID
  • Aadhaar card
  • PAN card
  • Passport
  • Driving licence

Proof of Address: You would require copies of any of the following as a proof of address.

  • Ration card
  • Electricity bills
  • Telephone bills
  • Property tax receipts
  • Passport
  • Bank passbook
  • Voter's ID
  • Aadhaar card

Features & Benefits of Demat Account

A demat account can be used for the following:

  1. To dematerialize securities and store them in an electronic format
  2. To rematerialize securities from electronic to physical format
  3. To invest in different securities such as bonds, exchange-traded funds, mutual funds, shares, etc.
  4. To track and monitor the progress of assets
  5. To get statements, including details such as transfers and current holdings, periodically
  6. To receive corporate benefits such as dividends, bonus, split, etc.
  7. To transfer assets, register Power of Attorney.           
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Movies To Watch To Learn Trading

Movies To Watch To Learn Trading
06/08/2018

Good movies serve as an excellent source of learning. This genre of entertainment resonates well with people and their lives. Cinema creates an impact which may seem hard to achieve through textual and other mediums. Even science has proved that learning curves through visuals and graphics are far steeper than through text media.

Here’s how movies can help one learn the art of trading:

Trading is a complicated process and usually takes a longer time to grasp and comprehend. Movies are capable of portraying these complex ideas efficiently in a shorter period.

Movies offer both cognitive and affective experience. They stimulate the brain as well as the emotional intellect of a viewer. It can implant ideas, enhance knowledge and help in connections with real-world scenarios.

Mentioned below are a few movies that convey great trading lessons:

Wall Street, 1987

This Oliver Stone classic is an incredible movie every finance professional should watch. It is the story of a young, impatient stockbroker who, attempting to follow his hero -- Gordon Gekko -- takes the illegal path to reach the top. True to his name, Gekko is a sly, greedy corporate figure on Wall Street. The movie warns us about the menaces of insider trading, while simultaneously defending it with Gekko’s famous words, “Greed is good”. It an eye-opener for young enthusiasts in the trading world who end up in illicit deals under the influence of greedy heroes like Gekko. It wraps up with a moral of having a clear conscience before entering the market.

Inside Job, 2010

Inside Job, a 2010 Academy award winner for the best documentary feature, is an excellent case study of the 2008 financial crisis. It portrays the horrors of the stock market and how the US financial industry led the world to the great turmoil. Top executives of giant investment banks fell for their greed and later walked away with their personal fortunes. It teaches a great deal about choosing the risks and drawing necessary lines at the same time. The documentary also features interviews with leading bankers, investment houses, economists and former RBI Governor Raghuram Rajan. It is a must watch for all trading enthusiasts.

Freakonomics, 2010

This is not a movie, but a whole series that starts by showing how to buy and sell stocks in real estate. It deals with a lot of thought-provoking ideas about how the real estate industry works. It is a good series to follow if you want to invest in the real estate sector. With its innovative concept of economics, it makes one analyze the in-depth trading mechanisms.

Margin Call, 2011

A financially-accurate plot spread over a span of 24 hours at a Wall Street firm that faces disaster. Margin Call revolves around the core team at an unnamed investment bank as they head towards the financial crisis of 2008. It is a fantastic thriller where an entry-level analyst unlocks the information which would lead the firm to its downfall. The key characters are involved in reckless risk-taking through trading in some complex derivative instruments they barely understand. They even talk about managing the corporation with or without understanding the business.

The Big Short, 2015

The Big Short is the perfect movie to learn about one of the biggest global crises. This film perfectly portrays the reason for the stock market crash of 2008, which cost eight million people their jobs and homes. It is a story of four people who predicted the stock market crash. They traded short while others went long. It helped them earn huge amounts of money for their investors, while markets were falling apart. They felt horrible that the financial world had to collapse for them to be proven right. However, they also acknowledged that the information was there for anyone to see. They have used a lot of financial calculations throughout the movie, which helps in relating to a real-world scenario. The Big Short teaches us a lot about the global economy and how it takes a turn.

The bottom line here is that these films provide an insight into the wild and vulnerable world of finance. Whether you are a prospective trader or someone closely working in this field, you can watch these movies to get a feel of the market. Some others movies like Rogue Trader, Trading Places, Billion Dollar Day are also a great watch. After watching these movies, a newbie investor should brace himself with the basics of trading to have a successful trading career.