Quarterly Update April 2021

IDFC Core Equity Fund (Large & Mid Cap Fund -An open ended equity scheme investing in both large cap and mid cap stocks)

IDFC Core Equity Fund focuses on the large cap and mid cap opportunities predominantly.

• Focus on ‘Quality with Valuation’ • Benchmark sensitive (NIFTY LargeMidcap 250) – Underweight/overweight sector weights depending on fund manager view

The companies are selected on the basis of the following factors:

➢ Cash Generating: Greater flexibility in responding to emerging dilemmas ((PAT + Non-Cash Charges –Including Working Capital) / EBITDA > 33%) ➢ Earning superior Return on Capital: Sustainably create value for shareholders by earning Return on Capital greater than the Cost of Capital (Return on Net Worth > 15% or EBITDA / Net Operating Assets > 30%) ➢ Ability to repay Debt: Fixed cost of debt poses a burden on cash flows that are cyclically impacted and therefore debt needs to be at a level that can sustain downturns (Debt / EBITDA < 3).

Performance Update During the quarter, the fund performed in line with the benchmark (Nifty Large Midcap 250 TRI). While, the fund outperformed the large cap index (Nifty 50 TRI). % return during the quarter Mar-21 Market cap Nifty Large Fund OW/UW Fund 9.8% mix Midcap 250 TRI Benchmark - Nifty Large Midcap 250 Large cap 52% 50% 1% 9.9% TRI Mid cap 38% 46% -9% Small cap 8% 3% 5% Nifty 50 TRI 5.3% Cash 3% 3% Nifty Mid cap 100 TRI 13.9% Nifty Small cap 100 TRI 14.8%

At a sectoral level, the top positive contributors were Commodities (UW), Consumer Discretionary (UW) and Consumer Staples (UW). The top 3 negative contributors were Health Care (OW), Utilities (OW) and Industrials (OW). Top 3 positive contributors Sector OW/UW Top 3 negative contributors Sector OW/UW Commodities Underweight Health Care Overweight Consumer Discretionary Underweight Utilities Overweight Consumer Staples Underweight Industrials Overweight

Source: Bloomberg report for Dec-Mar’21 quarter. Contribution considers allocation as well as selection effect

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Quarterly Update April 2021

What worked The fund maintained its overweight across Pharmaceuticals, IT services, Auto & Cement sectors. The fund benefitted from better stock selection across several sectors namely, Autos, Commodities, Cement, Consumer Discretionary and Consumer Staples. Importantly, in many of these sectors, our preference for stocks offering relative value – Ambuja Cement/ACC over sector heavyweights worked. This theme could be seen across several other sectors – Jindal Steel vs steel heavyweights; Deepak Nitrite vs specialty Chemical majors. If the current optimism of a strong economic recovery is not subdued by the second wave, then the strategy of focusing on relative value over sector heavy weights could sustain the lift up of last few of few quarters.

What did not work Our underweight to Banks/Financials continues to be the biggest worry “factor”. Our strategy of being overweight on Industrials as a proxy for domestic cyclicals (where Banks/Financials, are the largest component) and as complementary sector to Banking/Financials has not worked in the past – rather than splitting allocation between both sectors, we would have been better off owning just Banks in the portfolio. Within banks, the absence of NBFCs & HFCs in our portfolio was another factor which impacted quarterly performance. Our overweight on Pharmaceuticals, a sector where high base effect for March and June quarters, could lead to some more period of underperformance going ahead.

Key changes during the quarter

Mar-21 Dec-20 Change during the Nifty Large Sector/Weight Fund OW/UW Fund Qtr Midcap 250 TRI Cement / Building Mat 8.7% 3.9% 4.8% 7.7% 1.0% Health Care 9.1% 6.7% 2.4% 12.8% -3.7% Auto 9.5% 7.7% 1.8% 9.1% 0.4% Telecommunication Services 2.9% 1.8% 1.2% 2.9% 0.0% Information Technology 11.8% 10.8% 1.0% 12.7% -0.9% Industrials 7.5% 6.9% 0.6% 7.3% 0.1% Utilities 4.9% 4.9% 0.0% 5.0% -0.1% Energy 3.8% 5.3% -1.5% 3.7% 0.1% Consumer Staples 4.8% 6.4% -1.5% 4.1% 0.7% Consumer Discretionary 5.6% 8.5% -2.9% 5.9% -0.3% Commodities 4.9% 7.8% -2.9% 5.0% -0.1% Financials 23.7% 29.4% -5.7% 23.0% 0.7% During the quarter, the fund increased its exposure towards Cement/ Building Materials, Consumer Staples and Financials primarily, while reducing exposure towards Health Care and IT.

Portfolio stance – Key sectors

Financials While Nifty Bank Index, up 9.0% was the best performing sector, thankfully, the gains were much more muted as compared to Dec quarter. Nifty Financial Services Index was up 8.0%. With most Banking stocks upgraded, valuations, after the strong move post Oct’20 leaves little room for re-rating at least in the

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Quarterly Update April 2021 near term. Any escalation of a “second wave” could lead to Financials being the sector which gets impacted in the “First” line of a market correction. We will use any such correction to increase our portfolio allocation bringing it closer to the benchmark sector weight.

Information Technology The move to cloud and online during the pandemic, has handed the IT sector an opportunity like the Y2K. While experts view this to be a multi-year opportunity, stock market move tend to peak earlier. While we remain positive on the sector, the heightened growth possibility could lead to a “war for talent” and higher employee costs. This is a sector which would be hoping for a strong US economic rebound and USD, which will cushion some of the rising costs and protect the margin improvement of FY 21.

Auto This is a domestic cyclical, which should directly benefit from a rebound in GDP growth. However, rising metal prices, could impact near term margins, as manufacturers may not pass the entire hike in costs to consumers. Thus, sales velocity will be critical. Auto ancillaries, too are well placed with growing export opportunities. Though, they, too, may have near term margin pressure due to rising raw material costs. Admittedly, the rising metal prices, has the potential to reduce the sheen of outperformance of this sector in the near term. After two declining years, CY 19 and CY 20, the sector is poised for double digit volume growth, this could soften the blow of rising input prices and spur outperformance versus the benchmark.

Fund – Key metrics

Nifty Large Midcap Commentary Portfolio Metrics Fund 250 TRI FY 21 EPS growth 20.6% 24.0% The earnings growth of the portfolio has been lower than the earnings growth of the benchmark. The PE Ratio 27.3 29.0 relatively lower PE ratio versus the benchmark is the PB Ratio 3.1 3.1 result of the fund’s emphasis on ‘Quality + Valuation’.

Source: Bloomberg; Based on trailing 12 months data

Fund Manager Commentary

The swift march of the “second wave” has caught many by surprise. The impact of this is most pronounced in the state of Maharashtra, where the State Government has been forced to announce a sort of a lockdown. Hopefully, transmission in other states is less pronounced than Maharashtra. How the country contains this “wave” will have a direct impact on the strength of the rebound of the economy. On a positive note, select countries (UK & Israel), where over 50% of the adult population has been vaccinated have shown a remarkable drop in new cases and hospitalization. A faster vaccine adoption in , should give similar benefits. Last year, we saw Financials as a sector were the worst impacted by FPIs selling during March 2020. This time, we hope to use such an opportunity to add to our existing exposure in Banks/Financials. The sector remains the most attractive way to play a domestic recovery, a late learning for us.

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Quarterly Update April 2021

Fund positioning* – Stable & Cyclical Framework

Fund Stable Cyclical Total Benchmark Stable Cyclical Total Large Cap 26% 27% 53% Large Cap 30% 20% 50% Mid Cap 13% 26% 39% Mid Cap 22% 25% 46% Small Cap 5% 2% 8% Small Cap 1% 2% 3% Total 44% 56% Total 53% 47%

Stable Sectors: Retail Banks & NBFC’s, IT, Consumer Staple & Discretionary, Auto, HealthCare Cyclical Sectors: Corp Banks & NBFC’s, Energy & Utilities, Industrials, Cement, Commodities, Telecom Benchmark - Nifty Large Midcap 250 TRI *Breakup for equity allocation only (excluding cash) Cyclical & Stable Weight with Top 3 Stocks in each sector Cyclical Stable

Fund Benchmark Fund Benchmark Banks - Corp 13.5% 7.1% Banks - Retail 7.8% 8.4% ICICI 6.9% 2.7% HDFC 6.1% 4.4% SBI 3.0% 0.9% KOTAK MAHINDRA 0.9% 1.7% AXIS 2.5% 1.2% RBL 0.8% 0.3% 11.8 Energy 3.8% 5.3% Information Technology 10.8% % 2.4% 4.4% 7.4% 3.4% 1.4% 0.3% BIRLASOFT 1.4% 0.0%

MASTEK 1.3% 0.0% Industrials 7.5% 6.9% NBFC - Stable 0.7% 8.7% LARSEN & TOUBRO 2.0% 1.2% MAS FINANCIAL SERVICES 0.7% 0.0%

AIA ENGINEERING 1.8% 0.3%

CUMMINS INDIA 1.4% 0.5% Commodities 4.9% 7.8% Consumer Staples 4.8% 6.4% DEEPAK NITRITE 2.8% 0.5% EMAMI 1.3% 0.4% JINDAL STEEL 2.1% 0.5% 1.2% 0.1%

TATA CONSUMER 0.9% 0.3% Cement / Building Materials 8.7% 3.9% Auto 9.5% 7.7% ACC 2.4% 0.1% MAHINDRA & MAHINDRA 2.0% 0.5% SUPREME INDUSTRIES 2.2% 0.5% MRF 1.9% 0.1% 2.1% 0.2% 1.3% 0.3% Utilities 4.9% 4.9% Health Care 9.1% 6.7% 2.0% 0.3% DR REDDY'S LABS 1.7% 0.4% 1.8% 0.3% 1.6% 0.4% GUJARAT STATE PETRO. 0.6% 0.3% 1.5% 0.1% Telecommunication Services 2.9% 1.8% Consumer Discretionary 5.6% 8.5% 2.9% 0.8% INDIAN HOTELS 1.7% 0.3%

ADITYA BIRLA FASHION 1.6% 0.2%

VOLTAS 1.3% 0.9%

NBFC - Cyclical 1.6% 5.2%

ICICI SECURITIES 1.6% 0.1%

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Quarterly Update April 2021

The sectors / stocks mentioned herein should not be construed as an investment advice from IDFC Mutual Fund and IDFC Mutual Fund may or may not have any future position in these sectors / stocks. Benchmark - Nifty Large Midcap 250 TRI All data as on 31st March 2021

Fund Performance

Performance based on NAV as on 31/03/2021. Past performance may or may not be sustained in future. The performances given are of regular plan growth option. Regular and Direct Plans have different expense structure. Direct Plan shall have a lower expense ratio excluding distribution expenses, commission expenses etc. #Benchmark. ##Alternate Benchmark. The Fund Manager of the Fund is Mr. Anoop Bhaskar (w.e.f 30th April 2016). Other Funds managed by the Fund Manager:

Performance based on NAV as on 31/03/2021. Past Performance may or may not be sustained in future. The performance details provided herein are of regular plan growth option. Regular and Direct Plans have different expense structure. Direct Plan shall have a lower expense ratio excluding distribution expenses, commission expenses etc. 1The fund has been repositioned from a Mid cap fund to a value fund w.e.f. May 28, 2018. 4The fund has been repositioned from Balanced category to Aggressive Hybrid category w.e.f. April 30, 2018.

IDFC Core Equity Fund

(Large & Mid Cap Fund - An open ended equity scheme investing in both large cap and mid cap stocks)

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Quarterly Update April 2021

Disclaimer: MUTUAL FUND INVESTMENTS ARE SUBJECT TO MARKET RISKS, READ ALL SCHEME RELATED DOCUMENTS CAREFULLY

The Disclosures of opinions/in house views/strategy incorporated herein is provided solely to enhance the transparency about the investment strategy / theme of the Scheme and should not be treated as endorsement of the views / opinions or as an investment advice. This document should not be construed as a research report or a recommendation to buy or sell any security. This document has been prepared on the basis of information, which is already available in publicly accessible media or developed through analysis of IDFC Mutual Fund. The information/ views / opinions provided is for informative purpose only and may have ceased to be current by the time it may reach the recipient, which should be taken into account before interpreting this document. The recipient should note and understand that the information provided above may not contain all the material aspects relevant for making an investment decision and the security may or may not continue to form part of the scheme’s portfolio in future. Investors are advised to consult their own investment advisor before making any investment decision in light of their risk appetite, investment goals and horizon. The decision of the Investment Manager may not always be profitable; as such decisions are based on the prevailing market conditions and the understanding of the Investment Manager. Actual market movements may vary from the anticipated trends. This information is subject to change without any prior notice. The Company reserves the right to make modifications and alterations to this statement as may be required from time to time. Neither IDFC Mutual Fund / IDFC AMC Trustee Co. Ltd./ IDFC Asset Management Co. Ltd nor IDFC, its Directors or representatives shall be liable for any damages whether direct or indirect, incidental, punitive special or consequential including lost revenue or lost profits that may arise from or in connection with the use of the information.

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