HDFC Innovation Fund: Wealth Creation by investing in Potential Game Changers

HDFC MF has launched a New Fund Offer (NFO), HDFC Innovation Fund. This thematic fund will invest in companies that are adopting innovative themes and strategies. The progress of human civilization can be seen as series of innovations from the invention of the wheel to latest automotive technology, from discovery of fire to renewable energy, from crude stone-age weapons to drones etc. The pace of innovation has increased with advancements in technology and is disrupting industries. A thematic fund focused on companies adopting innovative strategies may have the potential to providing growth potential to your investment portfolio. In this article, we will review HDFC Innovation Fund NFO. The NFO opened for subscription on 27^th June 2025 and will close on 11^th July 2025.

Innovation drives economic growth

Trends in innovation and how it affects industries / businesses

Why invest in innovators? – They have been "Wealth Generators"

Global Context: The EPS growth of the Magnificent 7 viz Apple, Nvidia, Microsoft, Amazon, Meta (Facebook), Alphabet (Google) and Tesla between 2004 to 2024 was several times higher than S&P 500 EPS growth. The weight of technology in S&P 500 increased from 6.7% in 1990 to 32.5% in 2024

Source: Bloomberg, NYU Stern, Morgan Stanley; *EPS: Earnings per Share; Data for EPS as of December 2024

Indian Context: The Indian equity markets have rewarded sunrise sectors that have seen some form adoption of innovative strategies

Source: www.niftyindices.com (Capturing the Pulse – July 2024), NAASCOM, Industry Reports

Success story examples of innovations / innovators in India

Why invest in innovation theme in India?

• Strong Entrepreneurial Culture improving India's Global Innovation Rankings: Our nation ranks 3^rd globally in number of unicorns and the number of patent applications has surged by around 45% in 2023. This strong growth in our entrepreneurial culture is aiding the rise of India's ranking in global innovation index (GII), which has improved from 81 in 2024 to 39 in 2024. However, there is considerable headroom to add value since our per capita is significantly less than markets with similar GII scores (Source: HDFC MF, Global Innovation Index Database, WIPO 2024, NASSCOM, International Monetary Fund).


• High Talent Availability and Lower Salary Gaps vs Developed Economies:


• India has a large talent pool with skills required to drive innovation. India produces 22.4 lakh STEM (science, technology, engineering and mathematics) graduates versus only 7.9 lakh STEM graduates from the US. India accounts for 16% of global tech talent and is one of the top talent markets in terms of AI and cloud computing skills penetration.


• While there is a substantial difference in actual salary levels for different skill levels between US and India, the salary gap on a PPP basis is low. Thus, this will help India to enjoy a significant geopolitical advantage over developed markets, which will help retaining talent in India, especially when considering that our nation has emerged as the 4^th largest economy in the world with increasing job opportunities at different levels of skills (Source: EY, India Salary Guide (2024) by Uplers).


• Healthy Funding Environment:


• The funding (both Seed and Venture Capital) environment is healthy and provided the impetus for supporting new ideas and converting them into profitable businesses. The more noteworthy observation has been that seed funding >US$3 million is accounting 50.4% of the funding in 2024 vs 9.4% in 2017. This growth along with an 9x multiplication in VC funding (from US$1.2 billion in 2012 to US$11.2 billion in 2024), shows signs of a shift from traditional industries to a knowledge-based economy.


• With improving health in the VC segment, the exit environment for VCs have improved with number of exits doubling since 2021. VC-backed IPOs have also seen noticeable growth from 37 IPOs in the 2011-2021 period multiplying more than 2x in the post-2021 period (Source: Tracxn, Indus Valley - Funding Trends 2024, data as on January 17, 2025).


• Strong Digital Public Infrastructure key for Growth of Startups: Some of the digital public infrastructure initiatives of the Government that are critical for growth of startups are as follows:
  
  

  

  Source: National Payments Corporation of India, ONDC Website, Motilal Oswal, Indus Valley - Funding Trends (2024)



• The Government has undertaken and implemented key initiatives to support startup and innovation ecosystem in India like Atal Innovation Mission, Prime Minister's employment generation programme through Ministry of MSME, SAMRIDH scheme startup accelerator through funding and mentorship, ASPIRE (a livelihood business incubator to generate self-employment and skills development), Production Linked Incentive (PLI) scheme, Credit Guarantee Scheme for startups, Fund of Funds for startups schemes etc.

HDFC Innovation Fund - Investment Strategy

HDFC Innovation Fund - Investment Universe

Source: Industry Classification by AMFI (April 29, 2025)

Why invest in NFO of HDFC Innovation Fund?

• Exposure to companies that are adopting innovative strategies. Historical data shows that companies driving innovation can disrupt industries and create wealth for investor


• Opportunity to participate India's next leg of economic growth led by companies who are innovators or early adopters of modern technologies / strategies


• Exposure to quality companies with mid to long term high growth potential


• Diversified across market cap segments and industry sectors


• Fresh portfolio with no legacy holdings


• 25 years of track record of HDFC Mutual Fund with an experienced Investment / Equity Research Team

Investors should consult with the financial advisors or mutual fund distributors if HDFC Innovation Fund is suitable for their investment needs.