Why did Motilal Oswal, Invesco and Bandhan funds outperform in 2024?

• Last year, the Indian equity market, represented by Nifty 500 TRI, grew 16.1 per cent, whereas Motilal Oswal Flexicap Fund and Invesco India Focused Fund delivered exceptional returns of 46.5 per cent and 44.7 per cent, respectively.
  
• In the mid-cap segment, Motilal Oswal Midcap Fund delivered an impressive 58.26 per cent return in 2024, significantly outperforming the Nifty Midcap 150 TRI's 24.24 per cent return. Invesco India Midcap Fund also did well by providing a return of 44.52 per cent.
  
• Bandhan Smallcap Fund stood out in the small-cap segment, returning 44.74 per cent, against Nifty Smallcap 250 TRI's 27 per cent.

Reasons for outperformance

Value Research reached out to senior money managers of Motilal Oswal, Invesco, and Bandhan to understand what helped them stand out this year. Here is what they said.

Niket Shah, Chief Investing Officer, Motilal Oswal Mutual Fund
Shah attributed their success to two key factors: theme selection and precise stock selection within sectors.

"In a year when markets faced significant earnings growth challenges, our portfolios delivered earnings growth of 25-30 per cent on average. Themes like mid-cap IT, Hospitals, Manufacturing and Telecom contributed significantly across the funds," Shah noted.

In equity investing, avoiding underperforming sectors is as critical as betting on the right ones. Motilal Oswal's funds benefited from not investing in the fast-moving consumer goods (FMCG) and having a minimal exposure to the banking, financial services, and insurance (BFSI) sector.

Taher Badshah, Chief Investing Officer, Invesco Mutual Fund
Badshah said that themes like Defense, select PSUs (government-owned companies), Manufacturing and Pharma have played a crucial role in their outperformance.

He noted that their "constructive market outlook," despite widespread skepticism about sustained growth at the start of 2024, played a key role in their success. "While we recognised that valuations in certain mid and small-cap stocks were stretched, we identified numerous attractive opportunities in these segments," Badshah said.

Manish Gunwani, Head of Equities, Bandhan Asset Management Company
Bandhan's small-cap fund delivered strong alpha due to:

• They focused on bottom-up stock picking, analysing each company individually rather than relying on broad sectoral trends to identify potential winners.
  
• The fund also maintained an 8-10 per cent cash position over the past 18 months, which was strategically deployed during market corrections to enhance returns.

"Our thought process is that we want to invest in stocks that can double in the next three to four years and not be very benchmark-centric. When we see such opportunities in the market, we increase the allocations and when there are no opportunities, we decrease the allocation," explained Gunwani.

If you weren't aware, Bandhan's performance has improved significantly since Gunwani joined the fund house in January 2023. Moreover, increasing the research team from three to nine analysts has enhanced stock coverage and emphasised bottom-up stock selection.

Outlook for 2025

Motilal Oswal's Niket Shah plans to focus on IT, Pharma and select consumer companies while steering clear of the FMCG and banking sectors.
Bandhan's Manish Gunwani remains optimistic about healthcare companies and sees promising opportunities in innovative tech businesses.
Invesco's Taher Badshah anticipates a challenging year ahead: "Looking ahead, 2025 may not be as easy as the past two years. Risk management will be crucial. For investors with a 12-18 month horizon, diversified options like large-cap, flexi-cap, or multi-cap funds would be appropriate."

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