The strategy needs to evolve more before confidence can be drawn from it.
Despite what the name suggests, the fund isn’t a true-blue contra fund. Rather, manager R. Srinivasan, who has been at the helm here since June 2011, adopts a flexible investment approach. To begin with, he seeks contrarian bets--in other words, stocks he believes to be intrinsically strong, but that are out of favour due to reasons like perceived risk or negative sentiment. For instance, in 2012 he maintained an overweight position in the underperforming technology sector, betting on the robust fundamentals of stocks such as Infosys, whose price fell sharply following poor quarterly results.
Conversely, when he is unable to uncover contrarian stocks that he likes, the manager will invest in growth stocks. For instance, in 2012, Srinivasan’s investments in select stocks from the banking, consumer staples and health-care sectors belie any notions of contrarian investing. In effect, it’s a fluid approach that enables the manager to capitalise on a range of investment opportunities.
Indeed, there are positives here: To begin with, despite the portfolio’s large-cap bias, we have learnt from our interaction with the manager that he will continue to hold roughly 30% of assets in small/mid-caps. This augurs well for the fund, given that Srinivasan has strength in evaluating such issues. Furthermore, he has shown flair in executing a growth strategy on a large-cap fund under his charge—Magnum Equity Fund.
That being said, the distinguishing factor for this fund will be the contrarian investments. It will be interesting to see how the manager plies that aspect of the strategy, since we believe it can have a significant bearing on the fund’s long-term prospects. Another area to watch out for is the fluidity with which the manager merges his growth and contrarian bets. For now, we are inclined to believe that the overall strategy is yet coming together and that it will only evolve over time. Until we have seen more of the strategy, our confidence in the fund’s prospects will remain muted. We reiterate the Neutral rating.