From the FundManager’s desk

Ajay Vora Nikhil Ranka

Executive Vice PresidentEdelweiss Investment Management

Senior Vice PresidentEdelweiss Investment Management

Fund Manager, Edelweiss Dynamic Growth Equity [EDGE] Fund*

Fund Manager, Edelweiss Dynamic Growth Equity [EDGE] Fund*

WILL GROWTH CONTINUE TO SURPRISE?

`Click here for an audible synopsis of

the month by our Fund Managers

What we said How it played out Our picks

“We continue to tilt towards energy for tradeas we strongly feel that demand will outpacesupply in the interim, with most countries likelyto open up in H2CY21.”

Nifty Energy returned a healthy24% for the first six months of thefiscal

• Reliance,• Indian Oil• Bharat

Petroleum

“We are also turning positive on organized real

estate players as we see finished inventory

falling to 2 years from 3 5 years, coupled with

improving affordability and lower interest

rates.”

Realty turned out to be the show

stopper of this semi-annual event

returning a hefty 53% from Apr-

Sep'21.

• Oberoi Realty

• DLF

“Our picks in the media space also paid off on

account of the above-consensus earnings and

positive management commentary on the

outlook.”

We were as sure of the media

sector outperforming as the

Starks were of the upcoming

winter. Evidently, both didn't

disappoint, and Nifty Media

delivered 35% returns

• Zee

“We maintained a highly defensive stance andran a low net long portfolio along withstructured hedges to limit any potentialdownside due to the upcoming FED meeting.”

We ran a portfolio with 50% of the market's exposure,expecting a correction in August, which didn't play outthe way we anticipated and missed some of the run-up Nifty enjoyed. Though, our opportunistic play indomestic pharma and the reopening trade helped usaccumulate returns and remain consistent for themonth.

September marks six months since the inception of EDGE; let's take a walk down our short but eventful

memory lane. Here's a recap of our calls over the last two quarters and how they played out

QUICK RECAP!

CONCERNS FIRST!

India's manufacturing sector will undergo significant shifts over the next 5-10 years. The

Production-Linked Incentive (PLI) scheme has the potential to increase the manufacturing

share in domestic value addition. Also, the ongoing theme of CHINA+1 will boost the demand

environment for few emerging sectors like chemicals and electronic manufacturing. These will

add to job creation and lead to much stronger broad-based economic activity for the next 3-5

years. The housing markets have shown improvement since 2020. Inventory in top-7 cities is

down to 7-8 year lows which is positive for pricing. Projects by leading developers have seen 5-

15% price hikes. Affordability levels are among the best in 2 decades. Rising prices should

attract investor demand and also induce demand from fence-sitting end users, sustaining the

cycle.

DOES INDIA HAVE A SLIGHTLY SWEETER DEAL, THOUGH?

Fundamental headwinds for the Indian market are (1) growing concerns regarding a sharp

slowdown in China, (2) expectations of reduced bond purchases and higher interest rates by

DM central banks and (3) rich valuations of the Indian market.

The Chinese Government's interventionist approach to its big-tech companies and indifferent

attitude (so far) to the challenges in its real estate sector may compound concerns around the

slowdown of China's growth. We are not sure if the Government will intervene aggressively to

support economic growth as China's high public debt-to-GDP may constrain large-scale

stimulus. At the same time, China cannot afford a sharp slowdown in real estate, given the

sector's large share in GDP and household wealth.

We expect DM central banks to start tapering over the next few months, whereas EM central

banks are likely to raise interest rates to fight inflation and reduce the negative real rates. On

the other hand, India is expected to follow a middle path with a staggered reduction in bond

purchases over time and a likely rate increase in H2CY22. We do not see rate hikes over the

next few months; given inflation is currently manageable. However, the ongoing supply-led

disruptions across commodities (mainly energy) may cause higher-than-expected 'entrenched'

inflation, leading to the recalibration of central banks' inflation expectations, resulting in

higher yields.

Gross Fixed Capital Formation (GFCF) has three major contributors (households, govt. and

corporate), of which the 40% contribution by households is essentially on account of the

property cycle. The HH Capex contribution to GDP shrank from 16% of GDP in FY12 to 11% by

FY21, which has created headwinds for GDP growth over the last nine years. The current

property cycle reversal will potentially generate a delta of 1.2-1.4 ppts to the annual GDP

growth. Evidence of GFCF upturn was visible in 4QFY21 (before the second Covid wave) when

as a % of GDP, GFCF hit a 27 quarter high.

India's long-awaited private capex cycle is now showing initial signs of revival. Government’s

capex has also started improving from FY21, and the trend-forward appears encouraging

though it cannot create a vast delta. The private corporate capex uptrend is visible selectively

in steel, PLI, data centres, etc., although broader revival may take 12+ months.

Unlike the first wave, the second Covid wave had a muted negative impact on economic

activity across most sectors, visible in government revenue collections. Gross GST collections

in 5MFY22 were at INR 5.65 tn —9.9% higher than 5MFY20 (54.7% higher than 5MFY21).

Gross tax revenues in 4MFY22 grew 83%, while the net tax collections surged by 161% (mainly

reflecting the sharp surge in excise duty receipts). Given the limited dent to economic activity

and tax collections, we remain optimistic about the ability of the centre to deliver a lower

GFD/GDP at 6.4% in FY22E (6.8% in FY22BE).

We believe the rich valuations of the Indian market as a whole and most sectors, after a

sharp re-rating of most stock multiples from their pre-pandemic levels, raise prospects of a

pullback, albeit a moderate one at worst. This pullback may be accompanied by modest

returns for a longish period, given no fundamental change to short and medium-term

drivers of the Indian market.

However, if 10 year UST yields spike beyond 1.8%, driving the DXY index, we can see

accelerated FII outflows from the EM region.

DOES INDIA HAVE A SLIGHTLY SWEETER DEAL, THOUGH?DOES INDIA HAVE A SLIGHTLY SWEETER DEAL, THOUGH?

92%

-26%

118%

66%

Long Short Gross Net

Equity Exposure

In September, we continued to maintain our net long positions of > 60%. Market sentiments got a

boost as at the start of the month; the US Fed chairman commented that the US central bank

wouldn’t be in a hurry to raise rates, even after they taper their asset purchases

Our exposure in ITC, RIL and media outperformed the market by a wide margin. Among sector

indices, realty and power gained 33% and 10%. We were well placed in both these sectors.

After almost two quarters, we have turned positive on the auto sector due to improving rural demand,

abating Covid scare, and inexpensive valuation. In addition, we have also added sector leaders in airlines

and alocbev to participate in re-opening theme.

Capex revival is clearly visible across most large sectors now. We have identified key beneficiaries for

our core portfolio.

Given the heavy long Retail and HNI positioning in single stock futures and negative FII stance, we have

added the required index hedges to protect the portfolio.

How we performed NAV as of 30th Sep’21: 11.6852

Returns are for A1 class, net of management fees and expenses, gross of performance fees and taxes. Fund inception date: 5th Apr’21

A look at our portfolio

Exposure excludes investment in mutual funds and other securities for margin or temporary deployment of surplus funds

EDELWEISS DYNAMIC GROWTH EQUITY [EDGE] FUND – SEP’21

Fund/ Benchmark 1 Month 3 MonthSince

Inception

EDGE 3.75% 8.52% 16.85%

Nifty 5 0 TRI 2.89% 12.37% 21.25%

Exposures are % of Total NAV; notional values for derivatives (including options) considered here

Top five holdings

Quantitative

Indicators

Annualized

Volati l ity

Sharpe

RatioBeta

EDGE 6.16% 4.91 0.38

Nifty 5 0 TRI 11.86% 3.31 1

How we fared on the risk front

HDFC Ltd: Valuation below 2x FY23e book, impeccable asset quality and potential for value unlocking

through stake sale in subsidiaries

Reliance: Recent underperformance, improving GRM and ARPU makes it a good long term story.

Just Dial: Open offer at 1022 along with likely acceptance in the range of 70-75% should

restrict downsides

ITC: Worst seems to be over for the cigarette and hotels business. Strong growth in FMCG business and

value unlocking can be a potential trigger for re-rating.

HCL Tech: Valuations are at a 30% discount to peers, and we expect growth to pick up in the coming

quarters

2.9%

3.8%

3.9%

5.9%

6.6%

HCL Tech

ITC Ltd

Just Dial Ltd

Reliance

HDFC Ltd

Fund type Open ended Category III AIF

Fund Managers Ajay Vora & Nikhil Ranka

Minimum Investment INR 1 Cr

Subscription 15th and last working day of every month

Redemption Last working day of every month

Placement Fee Upto 2%

Management Fee (p.a. on average AUM)

Performance Fee Classes Fixed Fee Classes

A1 A2 A3 A5 B1 B2 B5

1.75% 1.50% 1.00% 1.00% 2.25% 2.00% 1.75%

1-5 Cr 5-10 Cr 10-25 Cr 25 Cr + 1-5 Cr 5-10 Cr 10 Cr +

Performance Fee 15% for class A1, A2, A3 | 12.5% for Class A5 (No catch up)

Hurdle Rate 10% pre-tax, post expenses with high water mark

Exit Load 1 % for exit between 0-12 months

Fund Expenses At actuals, capped at 35 bps

Custodian Edelweiss Capital Services Limited

Disclaimer: Edelweiss Dynamic Growth Equity Fund ("the scheme") is Category III Alternative Investment Fund – a scheme of Edelweiss Alternative Strategies Trust having SEBI Registration Number -

IN/AIF3/20-21/0857. Past performance is not an indication of future performance. Investments in the Securities Market are subject to Market Risk. Please read the Private Placement Memorandum (PPM) and

Scheme related documents carefully before investing. For a detailed Disclaimer, please click here

1Consistent returns across market cycles 2

Lock-in returns at regular intervals 3

Limit drawdownsduring extremevolatility

Objectives we’re striving towards

Fund Terms

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AIF Benchmark indices as per benchmarking agency CRISIL – Not Applicable. The Scheme has not completed one year since its inception