Kotak 50 Gr 114458

Kotak 50 is a reasonable, but not outstanding, choice.

In Dec 2010, manager Pradeep Kumar replaced Krishna Sanghvi at the fund's helm. But that wasn't a sharp break, since he continues to ply the same strategy here as Sanghvi used as lead.

Kumar loosely aligns the fund's portfolio with that of the benchmark index S&P CNX Nifty, viewing his positions in terms of their variances from the benchmark's weights. Generally, at least half of the stocks (accounting for roughly 50%-60% of assets) are chosen from the Nifty Index. Though a growth bias is apparent, the benchmark-consciousness typically results in investments in established names. Even with Kumar's own sector weights, a loose alignment with the index's weights is perceptible.

In keeping with the above and the fund’s billing, large caps have dominated the portfolio, accounting for roughly 85% of the portfolio versus 70% for a typical peer. Despite the benchmark-consciousness and large-cap tilt, the fund isn't run in a conservative manner. The manager will deploy tactical plays to capitalise on short-term opportunities, adding an element of timing risk. This is borne out by the fund's typically high turnover ratios (171% as of March 2012 and 167% as of March 2011).

The manager considers the benchmark-consciousness to be a form of discipline. However, we believe this aspect of the investment process is too limiting. For instance, the process forces him to stay invested in benchmark heavyweights irrespective of his conviction levels. The process can aid the fund's cause in a downturn, as it did in 2011. On the flipside, the lower allocation to smaller caps and non-benchmark stocks can hold back the fund from outscoring its peers in other market conditions. The fund's performance in the sideways market of 2010 is a case in point. Another worrisome aspect has been the execution of the strategy—the fund often has missed out on inflection points like the turnarounds in 2009 and 2012.

That is not to say this is a bad fund. Indeed, over longer time frames the fund boasts a pleasing risk/reward profile. However, the biases inherent to the process and its ordinary execution restrict our conviction. Until there is more evidence to suggest that the process can deliver a more well-rounded performance, we rate the fund Neutral.