HDFC Innovation Fund recently completed its 1styear with a very creditable 18%+ return in a market that’s delivered around 5% over the same period.
Amit credits this performance to the fund house’s strong research team and the rigorous scoring system that acts as the basic filter for stock selection for this fund.
While innovation is the key focus, stock selection materially depends on valuations too – Amit does not believe in chasing pure innovators (the few that exist in our market) at any price.
20% of the portfolio is allocated to healthcare – a space which Amit says has seen a sea change in business models with heavy focus on CDMO, on R&D leading to the first novel molecule from India with a promising pipeline to follow, on interesting international acquisitions of innovative businesses and so on.
He has also invested in leading auto and auto ancillary companies that are diversifying into cutting edge defense equipment, into electronics and also robotics.
His picks in the financials space include a leading consumer lending business and a leading insurance distributor – the common factor in both being the cutting edge work they are doing with AI driven analytics that deliver superior customer experiences and thus help them gain market share.
In the defense space, he sees Indian innovation more in the cost space rather than product development space – which is opening up a lot of export markets for key players.
Innovation as a filter clearly is alpha generative – as can be seen from the fact that the universe of 250+ stocks that Amit has for this portfolio (which score 3 or more on a scale of 5 on innovation) have themselves outperformed the market – even before his stock selection and position sizing added that incremental alpha to the portfolio.