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Focus on funds with lower downside capture ratio
Pankaj Tibrewal - Kotak Mahindra Mutual Fund

Pankaj Tibrewal, the midas master in the mid-cap space. Appreciated as India’s Best Fund Manager by Outlook Business for two consecutive years and ranked amongst the top 10 Fund Managers by the ET Wealth-Morningstar ranking, shares his views on the mid-cap space, how he sees the market and what advisors should be doing. Read on to know more!


MF Live: What strategy should be adopted by Advisors now at this point when the markets are at their all time highs? Mid Cap and Small Cap Funds look attractive to investors considering the returns these funds have delivered. What kind of hand-holding should an advisor give investors looking to chase returns through Small Cap Funds and Mid Cap Funds?

Pankaj Tibrewal: Yes Mid-Small caps have rallied very sharply over the last few years. The advice to investors would be that have a right mix of funds (large cap, multicap & Mid-smallcaps) and diversify across market capitalization rather than having concentration towards one. At the current juncture, the effort of the advisor should be to focus on funds in mid-small cap space which have lower downside capture ratio and in the past have demonstrated that the fund falls less when the market falls/corrects as there seems to be a higher probability that markets may take a breather or corrects.

MF Live: We take cues from the monthly presentation of Kotak (Click here to view the exhaustive presentation from Kotak) and are looking at the Performances across Market Cap over various periods of time, where Nifty Midcap followed by S&P BSE Small Cap have delivered higher returns over various time horizons ranging from 1 month returns to 5 year returns. With this in background, what is your take on the two categories i.e. Small Caps & Mid Caps again?

Pankaj Tibrewal: Mid and Small caps is a very broad category with many listed companies. Therefore, it will be incorrect to view it as one homogenous category. While there are pockets where valuations are stretched, we are also seeing significant opportunities in many other pockets like Oil & Gas, auto ancillaries, consumer discretionary, capital goods, niche businesses, cement, etc. At a structural level, most midcap and small companies derive a large part of their revenue from India and have relatively lower global exposure. As a result they are more inclined towards the India growth story and less impacted by the global macroeconomic slowdown. Also, many of these are well placed to benefit from the shift towards Organized sector on the back of Demonetization and GST. Overall, there are a good number of stocks in our investable universe, which meet our investment philosophy of having a competitive advantage, predictable earnings and are trading at attractive valuations.

MF Live: How have you positioned Kotak Emerging Equity now?

Pankaj Tibrewal: The portfolio continues to be pro-cyclical and tilted towards economic recovery. As a result we continue to be Overweight on sectors such as cement, capital goods & engineering, auto ancillary, media, financials and consumer discretionary.

We believe that from a medium term perspective post GST implementation, the organised players would become stronger as unorganised sector would find it tough to do business in the changed environment and cede market share to more organised players and portfolio is well positioned in those sectors where there is a large portion of unorganised players.

In the IT and pharma sector we continue to have stock specific approach.

The fund continues the underweight stance on consumer staples and pharma.

MF Live: How should advisors position Kotak Emerging Equity Fund in their clients portfolio? What percentage should be the allocation for different risk profiles?

Pankaj Tibrewal: Kotak Emerging Funds should be positioned as a mid-small cap fund within the clients portfolio with strong focus on identifying the leaders of future. The fund is focused on bottom up stock selection with an eye towards the benchmark. The fund continues to have a diversified portfolio and is suitable for investors who are looking for a higher risk adjusted return fund in the mid-small cap category.

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