What is your investment universe?
The fund invests between 65 to 90 per cent in mid-cap stocks and the rest is allocated to large-cap, small-cap and cash, with a minimum investment of 10 per cent in small-caps. The mid-cap universe for us is defined as 101-400th stocks ranked by market-cap. Anything below the 400th stock is small cap and the top 100 stocks are large caps.
What attributes should a stock have for it to become a part of your portfolio?
The stock should either be a structural growth stock or an emerging company in any sector which is growing faster than its peers or a company where there is a positive change in margins in terms of business fundamentals. We look for capital light business models, high scalability, strong management/promoter background/track record, high promoters' holding, good history of consistent dividend/tax payouts etc. apart from favourable risk reward in terms of price value gap as some of the factors while investing in any mid-cap company.
What kind of stocks never enter your portfolio?
We never say never for stocks to enter our portfolio. However, in case of companies which have had corporate governance issues in the past, and/or where promoter holding is very low (below 10 to 15 per cent) are generally avoided.
What will you attribute the relatively superior performance of your fund to in recent years?
We have a strong internal research team which continuously looks for new investment ideas with thorough research done internally which helps in investing in good mid-cap stocks. We own our investments over a longer horizon (3 to 5 years) to benefit fully from the company's growth potential and compounding impact it has for portfolio returns. We are more careful while entering any new stock and look for higher margins of safety as we plan to own it for the long term.
Is there any tactical miss you regret (for instance, not owning a stock or not owning enough of it)?
In case of mid-cap stocks there are always ideas that we would have missed at any point of time as new companies emerge or turnaround cases come to light as the universe is much larger than for large cap stocks. What matters is whether your existing investments can deliver equal or better returns as compared to the misses that we may have had. In recent past, we missed participation in the broad based rally in mid-cap stocks in many sectors. The prominent miss being rally into housing finance NBFCs, auto and ancillaries, chemicals and fertilizers, and real estate stocks.