Our investment universe is quite large and we have a lot of flexibility, says Chirag Setalvad, fund manager, HDFC Mid Cap Opportunities
Chirag Setalvad, fund manager, HDFC Mid Cap Opportunities, says they would use the flexibility to invest in large caps in a very selective manner.
What is your investment universe?
The Fund is mandated to invest between 75-100% in midcap companies and has the flexibility to invest up to 25% in large cap companies. However, we would use the flexibility to invest in large caps in a very selective manner. Midcap companies are defined as any company with a market capitalisation less than the largest constituent of the CNX Midcap Index (and greater than or equal to ₹500crs). Thus, the investment universe is quite large and we have a lot of flexibility.
What attributes should a stock have for it to become a part of your portfolio?
Ideally, we are looking for companies that are growing at or more than 15-20% with good cash flow generation, acceptable return on equity and which are available at a reasonable price. We want to invest in companies when we can understand the business and its risks quite well and where minority shareholders are treated equitably.
What kind of stocks never enter your portfolio?
We avoid companies whose business and its risks we can't understand well. We prefer not to invest in companies where management has a poor track record. Lastly, we would like to evaluate businesses across a cycle and avoid those companies whose returns and cash flows across a cycle are unsatisfactory.
What will you attribute the relatively superior performance of your fund to in recent years?
Overall, we have followed a bottom up strategy in creating a portfolio of reasonable quality business while avoiding overpaying for them. In doing so, we have attempted to minimise our mistakes. This has worked well for us so far.
Is there any tactical miss you regret (for instance, not owning a stock or not owning enough of it)?
Regret is an inevitable part of this business be it the wish to have owned more of a winning idea, having avoided a laggard or the regret of not owning a stock at all. We aim to invest in good businesses at reasonable prices with the intention of reducing our errors particularly the permanent erosion of capital as much as possible.
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