Senior Research Analyst Kavitha Krishnan has analysed 5 funds. Research Analyst Melvyn Santarita has analysed ICICI Prudential MidCap Fund. The six funds have been presented according to the date of analysis. The name of the funds link to more details on the fund and a note by the analyst.
ICICI Prudential MidCap Fund
- CATEGORY: Mid Cap
- DATE OF ANALYSIS: August 2022
- ANALYST RATING: Neutral
- FUND MANAGER: Prakash Gaurav Goel was the fund manager when the analysis was done. There has been a very recent change which shall get updated.
The primary criteria by which Goel constructs his portfolio is that the companies should have the potential to deliver in excess of 50% returns over a period of three years. There are certain guiding principles, viz. corporate governance, opportunity landscape, market share winner/loser and ROE. Within this broad framework, Goel constructs the portfolio following a GARP approach with a bias towards growth names.
Goel follows purely a bottom-up stock-picking approach. Benchmark sector weights are not a guiding factor for him, but he does keep an eye on them and uses them as an input factor while adding/reducing certain exposures in the portfolio. Goel also looks at the broader market and macro factors to understand the ongoing scenario and investment environment. With the help of the market and macroeconomic study, he tries to understand what is in fashion and what is out of fashion.
Goel typically invests for a three-year horizon, but there is a continuous evaluation. During evaluation, if a stock's valuation is found to be shifting to much to the expensive side, or if there is a good peer trade available at some stage, he won't hesitate to trim the exposure or move to the other opportunity. The investment style has multiple facets. And while most of these factors may not be distinctive in nature, each of them gets knitted into a portfolio. We would like to hold on to our conviction as of now and evaluate how the strategy progresses and evolves overtime. Also, we would like to evaluate as to how Goel is able to manage this fund along with the other marquee funds he manages. The fund earns an Average Process Pillar rating for now.
Related Reading: Why we like these 3 funds from ICICI Prudential
HDFC Small Cap Fund
- CATEGORY: Small Cap
- DATE OF ANALYSIS: June 2022
- ANALYST RATING: Neutral (Regular), Bronze (Direct)
- FUND MANAGER: Chirag Setalvad
Like all equity managers from the fund company, Setalvad adopts a hands-on approach to research, in order to identify companies with robust business models, strong competitive advantages, and clean balance sheets. Company meetings are an integral part of the evaluation process.
Setalvad looks for tangible business models with a track record. Emerging companies with untested business models don't find favor with him. The portfolio's top holdings, such as Bajaj Electricals, Sonata Software, and Firstsource Solutions bear out this approach. He typically looks for companies that can generate reasonable free cash flows and have high returns on equity. He combines absolute and relative valuation parameters to select stocks that aren't too expensive relative to their growth prospects.
The portfolio's price multiples tend to be slightly lower compared with the category averages. Broadly speaking, the investment style can be characterized as growth at reasonable price. Setalvad has consistently adhered to his professed style of investing in quality businesses with established track records. This incorporates an element of predictability to the investment process, one which will likely hold the fund in good stead over longer time periods. The investment process follows a bottom-up approach and is reasonably simple and well-defined. The strategy's success hinges heavily on the team's research capabilities. Setalvad is proficient on that front and has adequate support from the investment team.
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HDFC Mid-Cap Opportunities Fund
- CATEGORY: Mid Cap
- DATE OF ANALYSIS: May 2022
- ANALYST RATING: Bronze (Regular), Silver (Direct)
- FUND MANAGER: Chirag Setalvad
Chirag Setalvad emphasizes on understanding the niceties of a business before investing in it. Like all equity managers from the fund company, he adopts a hands-on approach to research, to identify companies with robust business models, strong competitive advantages, and clean balance sheets. Company meetings are an integral part of the evaluation process.
Setalvad looks for tangible business models with a track record. Emerging/niche companies that have untested business models or are at best simply attractive ideas don't find favor with him. The portfolio's top holdings, such as Bharat Electronics and Balakrishna Industries, bear out his approach. He typically looks for companies that can generate reasonable free cash flow and have high ROEs. He combines absolute and relative valuation parameters to select stocks that aren't too expensive relative to their growth prospects.
Broadly speaking, the investment style can be characterised as growth at a reasonable price. The investment process is evidently closer to a bottom-up approach. At its core, the process is reasonably simple and well-defined. For the process to succeed, getting the research right is primary. Setalvad is proficient on that front and has adequate support from the investment team. Also, he has consistently executed the strategy proficiently.
Related Reading: Should I exit HDFC Midcap Opportunities?
Aditya Birla Sun Life Mid Cap Fund
- CATEGORY: Mid Cap
- DATE OF ANALYSIS: April 2022
- ANALYST RATING: Neutral
- FUND MANAGER: Anil Shah
Shah plies a growth-oriented approach and draws on relative valuation techniques such as price/ earnings, price/book value and enterprise value/EBITDA while picking stocks. He prefers companies that are cheaper than the sector and the broader market but offer sustainable growth prospects. That said, he is not averse to paying more for a company if it has strong growth prospects.
Analysts evaluate stocks from a bottom-up perspective and look at factors like the quality of the management, quality of the business, business model and framework, sustainable return on equity, return on investment, entry barriers, and so on. They will also look at how promoters are invested in their own business and how minority shareholders are rewarded. Analysts assess earnings results on a quarterly basis, and they meet company managements biannually.
Shah also focuses on the top-down and macro factors that govern the markets. He looks at investing in themes that are expected to play out over a three- to five-year horizon and remains invested in a sector/stock until his investment thesis plays out. The portfolio is diversified across 50-70 names, and the manager views this approach as a safeguard against market volatility and stock-specific risk in the portfolio. Overall, we think that the process is well structured but is heavily dependent on the manager's stock-picking ability.
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Kotak Small Cap Fund
- CATEGORY: Small Cap
- DATE OF ANALYSIS: February 2022
- ANALYST RATING: Bronze (Regular), Silver (Direct)
- FUND MANAGER: Pankaj Tibrewal
There is a very strong focus on the promoter and the product lineup. The manager looks for businesses with durable competitive advantages operating in industries with high barriers to entry. Corporate governance and liquidity play a key role in Tibrewal's portfolio. He typically favours growth companies having advantages such as brand name, business capabilities, and/or market shares that generate steady cash flows; have capable management teams; and trade at reasonable valuations. He combines absolute and relative valuation assessments to determine the fair value of stocks and size his positions accordingly.
Tibrewal constructs the portfolio using a bottom-up approach and uses the diversified model portfolio created by analysts as his initial reference point, but he is not constrained by it. Analysts use a combination of quantitative models using relevant ratios such as P/BV, P/E, EV/EBITDA, and other valuation methodologies like DCF models to evaluate stocks. Downside risk is a key focus while taking bets. The top-down approach is not entirely ignored, as Tibrewal takes sector exposures based on their growth prospects and relative valuations compared with the broader index and with itself on a historical basis.
Portfolio constraints are part of risk management across portfolios (conservativeness is followed across AMC) based on the fund house view and sector over- or underweightings tend to get reflected across all their funds.
Related Reading: 6 funds with a large-cap mandate
Kotak Emerging Equity Scheme
- CATEGORY: Mid Cap
- DATE OF ANALYSIS: January 2022
- ANALYST RATING: Bronze (Regular), Silver (Direct)
- FUND MANAGER: Pankaj Tibrewal
Tibrewal constructs the portfolio with a bottom-up approach and uses a diversified model-portfolio created by analysts as his initial reference point, but he is not constrained by the same.
Analysts use a combination of quantitative models using relevant ratios such as P/BV, P/E, EV/EBITDA, and so on, as well as other valuation methodologies like DCF models to evaluate stocks. Downside risk is a key focus while taking bets. The manager looks for businesses that have strong entry barriers and sustainable competitive advantages. Corporate governance and liquidity also play a key role in Tibrewal's portfolio. He typically favors growth companies having advantages such as brand name, business capabilities, and/or market shares that generate steady cash flows, have capable management teams, and trade at reasonable valuations. He combines absolute and relative valuation measures to determine the fair value of stocks and invests based on a stock's intrinsic value, valuations versus industry peers, and historical valuations.
The top-down approach is not entirely ignored, as Tibrewal takes sector exposures based on their growth prospects and relative valuations compared with the broader index and with itself on a historical basis. Portfolio constraints are part of risk management across portfolios (conservativeness is followed across AMC) based on the fund house's view, and sector over- and underweightings tend to get reflected across all funds.
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