Kaustubh Belapurkar, Director, Fund Research, Morningstar Investment Adviser, spoke to Anuj Singhal and Ekta Batra on CNBC-TV18 about flexi-cap funds. Below is an extract from the transcript.
Flexi-cap funds are probably suited for slightly more hands-off investors who want to leave the job of deciding what market capitalisation stocks to get into to the fund manager. And, there are some great managers to make that call for the investors and some really good funds in this particular category.
What is the strategy of ICICI Prudential Value Discovery?
Very important to point out about this particular strategy is that it is a differentiated strategy in the sense that we don’t have too many value-based strategies in the Indian market. They are mostly growth-oriented strategies.
Mrinal Singh, who has been managing this fund for the last five years, is a pretty good value stock picker. He obviously would use a typical value screen in terms of PE, price to book value, EV to EBITDA, but then actually does a lot more deep diving into understanding the fundamentals, the competitive advantages and actually picking fundamentally strong stocks, which are probably trading below their fair value.
This short of strategy is good for investors since it can give a steady return across market cycles. It is not going to give you a blowout performance in a very bullish market, but when you look at it across a bull and a bear market cycle, I think this fund has done exceptionally well. It has outperformed the BSE 500 by almost 10% over a 5-year period. So that’s a phenomenal return right there.
Will assets under management be a concern, since the fund already has about Rs 12,500 crore in AUM?
I think what works well is because of it straddling both the mid and the large cap space, the manager has the flexibility to move across capitalisation, to where he sees more value or more growth come in. I don’t see that as a constraint really. Large caps are very well traded in the market, mid caps are also not that bad off. There is no capacity constraint per se with some of these strategies. We don’t see any issue at all.
Read the analysis of ICICI Prudential Value Discovery.
What is the strategy of Franklin India High Growth Companies?
Franklin India High Growth Companies is actually straddling the pure sort of growth strategy if I may say so. Roshi Jain, has managing the fund. Franklin Templeton always been a very quality conscious stock picker, so essentially what they doing here is picking high quality stocks where they looking at exceptionally high growth as compare to the industry average. This is a slightly more concentrated portfolio. Typical mutual funds will hold in the range of about 50 stocks. This fund tends to hold about 35-40 stocks, so it is a more concentrated portfolio with a more aggressively aligned portfolio.
This fund would be for investors who are looking at participating in the India growth story and making the most of it in the years to come.
This fund has really done well. Their bets on some of the healthcare stocks, some of the technology stocks, some of the consumer cyclicals have really paid off well.
If you look at it currently, the fund is overweight on some of the banks and some of the telecom companies. We are quite keen to see how this fund will deliver over a long time period which should really play well for investors.
Read the analysis of Franklin India High Growth Companies.
Most of these funds have large private banks in their portfolio. Most are overweight on ICICI Bank. What is the rationale?
Not just ICICI Bank, but some of the other banks too. So, for instance, you will see State Bank of India appearing in some of these portfolios and, in fact, is the top holding in a couple of these funds.
Managers have seen that bank valuations have really dropped and fundamentally they still believe that it is a very strong proposition and that’s really were they are sort of adding on positions to. So obviously one is the valuation comfort and the other being that they seeing some sort of growth coming back into the economy and expecting that financials will be beneficiary of this play.
What would be the rationale behind funds holding Larsen & Toubro and Tata Motors?
Again, you are looking at the consumer driven sort of economy picking up, your infrastructure spent picking up and that’s really where you would tend to add some of these positions.
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