Edelweiss Focused Equity Fund - NFO

 

Edelweiss Focused Equity Fund

Market context

The India Growth Story continues to be strong despite short term macro headwinds. Rising income in India is creating a demand for better goods and services. The Government’s economic policies over the last 2 terms, together with the impact of COVID-19 pandemic, have triggered a shift towards the organized sector making businesses stronger. Increasing internet usage is enabling the growth of innovative business models. Record level of Government spending is likely to have an multiplier effect in terms of boosting private sector capex to create a virtuous growth cycle for India. We think India may see the best decade of growth and transformation in the coming years.


A combination of factors is creating a very favourable scenario for Indian equities from a medium to long term investment perspective. Corporate earnings have been growing at an impressive pace over the past few years. After a period of very high prices, commodity prices (e.g. food, metals, oil and gas etc) are now beginning to fall. Inflation is not a concern as it was a few months back. Market valuations are attractive after the deep correction. Historical data shows that deep correction provides attractive investment opportunities for long term investors. Though Foreign Institutional Investors continue to be net sellers, FII investments are picking up in certain industry sectors like capital goods; this trend can accelerate in the future. Overall, we think that the medium to long term outlook for Indian equities is strong.

Why invest now?

1.  Strong earnings growth outlook: After years of tepid earnings (EPS) growth from FY 2015 to FY 2020, earnings growth rebounded in FY 2021 and is estimated to grow even faster in FY 2022. Double digit earnings growth is expected over the next few years.



Source: Bloomberg, Edelweiss MF. Disclaimer: Past performances may or may not be sustained in the future.

2.  Corporate profits to GDP at 10 year high: The profits of nifty 500 Companies to GDP ratio rebounded to a decade high of 4.3%. Higher corporate profits to GDP ratios indicate improving operating margins, which in turn indicates improving return on capital employed (ROCE) and higher returns for shareholders / investors in the future. 

Source: Edelweiss MF. Disclaimer: Past performance may or may not be sustained in the future.

 

3.  Valuations are attractive now: The sharp correction has brought down valuations to much more reasonable levels now. Nifty 50, 1 year forward Price Earnings (PE) ratio is now at 18x levels, which is in line with the 10 year average.


Source: Edelweiss MF. Disclaimer: Past performance may or may not be sustained in the future.

 

4.  Strong historical evidence in similar conditions: While behavioural biases make investors fearful in bear markets, historical data shows that investments made during market corrections may lead to higher returns over sufficiently long investment horizons. Historical data shows that Nifty 50 gave 20 – 23% CAGR returns over the next 5 years, when investments were made after market corrected 0 – 20% in a year (source: ACE MF, Edelweiss MF. Disclaimer: Past performance may or may not be sustained in the future). Historical data also suggests that though rate hikes were negative for equities in the short term, equity markets have performed well during the entire phase of interest rate hike cycle (source: Bloomberg, Edelweiss MF. Disclaimer: Past performance   may or may not be sustained in the future).

Edelweiss Focused Equity Fund NFO

Edelweiss mutual fund is launching a New Fund Offer of Edelweiss Focused equity fund. The fund is unique in terms of its offering compared to other focused funds in the industry. It gives you access to 3 timeless investment opportunities. The salient features of the fund are as follows:-

 

1.  Concentrated portfolio: The scheme will invest in a portfolio of 25 to 30 stocks.

2.  Multicap: The scheme will invest across market capitalization segments.

3.  Diversified across sectors: The scheme will invest across industry sectors.

Now let’s understand more on its 3 unique investment opportunities.

1.  Brands: The scheme will invest in established and emerging brands across B2B and B2C segments. India is home to a number of strong brands across diverse sectors like banks, technology, oil and gas, telecom, retail, automobiles, engineering, financial services, retails etc. Historical data shows that strong brands can create higher shareholder value and wealth for investors.


2.  Market share gainers: The scheme will invest in market share leaders and emerging market share gainers who can become market share leaders in the future. Market share leaders are able to grow revenues faster than the industry, enjoy higher operating margins, have the advantage of competitive moats and deliver superior financial performance.


3.   Innovators: The scheme will invest in innovators, adaptors and enablers of change in business dynamics. Innovators can cause massive disruptions to the industry and create a new eco-system. There is very strong historical evidence of innovators being big wealth creators for investors. 8 out of top 10 companies by market capitalization in S&P 500 index were leading innovators in the last 20 – 30 years. There are several examples in India also, of how innovators caused major disruptions in their industry sectors and created wealth for investors. Smartphone penetration, increasing internet usage, digitization of payments and economic policies of the Government has created fertile grounds for innovators to flourish.

 

Why invest in Edelweiss Focused Equity Fund?

1.  With a pickup in earnings growth and favourable macro trends, the long term growth outlook on Indian equities remains strong.

2.  The recent correction has brought down valuations to reasonable levels.

3.  Historical data shows that investments made in similar market conditions have given higher returns in the long term.

4.  Allocating a portion of your portfolio to focused funds may be a good strategy because stronger companies usually outperform during market recovery.

5.  The investment strategy with its focus on brands, market share gainers and innovators will be suitable for a focused fund with high conviction stocks.

Who should invest in Edelweiss Focused Equity Fund?

1.  Investors looking for capital appreciation over long investment tenures.

2.  Investors who are looking to invest for atleast 5 year or more

3.   Investor may invest either in lump sum or through SIP. If you are worried about market volatility, besides SIP one can also invest in the scheme through STP from a low risk Edelweiss MF fund.

Investors should consult with their financial advisors if Edelweiss Focused Equity Fund is suitable for their investment needs.

 

Disclaimer

Mutual Fund Investments are subject to market risk, read all scheme related documents carefully

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