HDFC Defence Fund Garners 40% More Than Anticipated In NFO, Lumpsum Inflows Shut
The HDFC Defence Fund's NFO was originally set to close on June 2, but it ended on May 30.
HDFC Mutual Fund collected around Rs 1,040 crore in the new fund offer for its defence fund, 40% more than it had anticipated it would, a source close to the development told BQ Prime on condition of anonymity. The mutual fund halted fresh lumpsum investments and restricted systematic investment plans in the fund on Monday.
Fresh systematic investment plans with a monthly frequency up to Rs 10,000 per investor will be allowed, according to an addendum to the scheme information document.
The mutual fund launched the new fund offer for the HDFC Defence Fund on May 19 and it was originally set to close on June 2. But the asset manager closed the offer earlier on May 30.
The defence fund is a sectoral scheme with the objective of investing at least 80% of its net assets in equity and equity-related instruments of defence and allied sector companies. According to the scheme information document, the core portfolio of the fund "will be listed companies that obtain at least 10% of revenues from defence segment". The Nifty India Defence TRI, which includes 13 defence companies, will serve as the benchmark for the fund.
The investible universe for the fund is slightly wider, with the investor presentation of the fund highlighting 21 companies. Though, at the time, 18 of these stocks were small caps and contributed 28% of the market capitalisation of the total.
Why The Pause
Mutual funds usually pause fresh inflows into schemes when they feel they will be unable to effectively deploy funds. This may be on account of regulatory restrictions, or because the fund manager feels that valuations don't justify fresh purchases.
In the past, mutual funds have stopped fresh inflows into funds that invest in equity abroad, after the industry-wide limit for such investments was breached.
In the case of the HDFC Defence Fund, the decision to pause fresh inflows likely has to do with stretched valuations. India’s defence stocks have surged in the recent past on the back of optimism of higher procurement by the Indian government.
According to data from the Ministry of Defence, the government has increased budgetary allocation to the sector. In the budget 2023-24 fiscal, the allocation for the sector stands at Rs 5.94 lakh crore, a 13% increase as compared with the previous year. Capital outlay for modernisation and infrastructure development has been raised to Rs 1.62 lakh crore, up 57% since FY20.
The Nifty India Defence had gained over 55% in the year through May 31.
