Fund manager explains why small and mid-cap funds gave over 60 per cent returns in 2023

Some of Mahindra Manulife MF's equity funds - such as their small-cap (72 per cent returns last year), mid-cap (60 per cent) and multi-cap (54 per cent) offerings - had a remarkable 2023. Given this context, we recently sat with Krishna Sanghavi, the fund house's chief investment officer - equity, to understand the reason behind the success. Not just that, he even spoke about the fund house's investment philosophy and the selection criteria for small- and mid-caps. Here's the edited transcript. Interview with Krishna Sanghavi, CIO- Equity at Mahindra Manulife MF Indian markets have been volatile after witnessing a rally in the last few days. Will the rally from last year continue, or will there be a correction? From a macro perspective, Indian markets are currently trading at premium valuations, similar to several risk assets globally. From a micro angle, there are adequate spaces that offer value, perhaps more in large-caps compared to mid and small-caps. In terms of market directions, apart from pure domestic factors, international factors, mainly how the global economy and global markets led by the US behave, will be important. The US, with over 25 per cent of the world's gross domestic product (GDP) and around 50 per cent of the world's market capitalisation, sets the tone for global equity markets, including India. So, with the US markets remaining in good sentiments, we (the Indian markets) will be fine. If the USA faces worries, we'll face a similar mood in India. Over time, we have experienced that risk appetite transmits quite fast across financial markets as money is fungible across markets. Can you provide insight into the investment philosophy of the fund house and how you select stocks? We at Mahindra Manulife use the GCMV investment framework that evaluates/analyses companies on four variables, before the company forms a