'Our calls on certain sectors have not worked in the last year'

Kotak Mahindra is the fifth largest fund house in the country and holds a prominent place in our list of recommended funds. While the AMC has a solid track record of generating wealth for its investors, many of their mainstream equity schemes had a tepid 2023. We spoke with Harsha Upadhyaya, CIO-Equity at the AMC, to understand the factors behind their funds' short-term underperformance. He also shares his thoughts on the recent changes in the equity management team. Kotak Emerging Equity, Kotak Small Cap and Kotak ELSS have trailed both the respective benchmarks and their peers in 2023. With these funds delivering blockbuster numbers year on year, the underperformance is unfamiliar to their investors. What has led to this? In the case of mid-cap and small-cap segments, if you look at calendar year returns over the last 15-20 years, you will see a pattern: There are some years where the majority of the funds outperform and vice-versa. That's the nature of the market. 2023 is one such phase where many mid-cap and small-cap funds, including ours, have faced headwinds. That's simply because the liquidity has gone towards the lower end of such stocks. When you see such a broad-based rally, having 50-60 or even 100 stocks in the portfolio will not help. This is something that is external to us. As far as internal factors are concerned, our calls on certain sectors have not worked in the last year. But these are also the same sectors which have given us compounding returns on a three-year basis. We generally don't try to churn our portfolio if there is a short-term or a transient headwind. For instance, Consumer Durables, where we have been overweight in both emerging equity and small cap, has generated good alpha on a three-year basis but has not done well in the last one-and-a-half years.

This article was originally published on February 14, 2024.