The investment approach
The investment approach is typically bottom-up, research-driven. The investment team applies rigorous qualitative checks and looks at a company’s fundamentals. Fund manager Sunil Singhania has a strong growth bias and scouts for companies he believes can double profits in three to four years. He also seeks business scalability and targets companies that can increase sales at a faster pace than peers.
In rising markets, Singhania tends to increase allocations to high-beta names. We think the process is commonplace and its long-term success will depend on how well it is executed. On that front, we would like to see a better showing.
The categorization
The fund started off in the mid- and small-cap category. However, the growth in assets coincided with a change in its character as well. At around Rs 81 billion in December 2010, it was a huge mid-cap fund. It was also the largest in the flexi-cap Morningstar category then. Since then, Singhania has progressively allocated a larger portion of the portfolio to large caps, which resulted in the fund’s portfolio resembling more of a flexicap fund than a predominantly mid-cap.
In September 2014, the fund was moved to the flexi-cap category on account of a shift in its investment approach.
The returns
The fund has had some great runs. The fund outscored 83% of peers (from its erstwhile small-/mid-cap category) in 2007.
In 2009, Singhania was caught on the wrong foot when his was left with cash holdings as the market took off. (He took a big cash call in 2008 - 24%).
He also had an ordinary 2010 as well as 2011. In 2012, the fund failed to match 62% of its category peers from the small-/mid-cap category.
In 2013, the fund had a bad run and underperformed the flexi-cap and mid/small-cap fund categories. Last year the fund did very well but this year it is lagging behind the flexi-cap category average with a return of -2.47% YTD (category average: -0.44%).
The rating
The fund has been assigned a Neutral rating.
Singhania is an experienced manager backed by a strong investment team and the fund has a noteworthy long-term record.
However, the analyst's confidence is restrained until there is more evidence that the strategy can be executed with the same proficiency as in the past. Hence, the Morningstar Analyst Rating of Neutral has been reiterated. This rating indicates that the fund isn't likely to deliver standout returns but also isn't likely to significantly underperform, according to the analysts.
You can read the synopsis of the analysis here.
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