Kotak Emerging Equity Fund: Identifying Growth-oriented Mid-cap Stocks

Jul 06, 2023 / Reading Time: Approx. 10 mins

Listen to Kotak Emerging Equity Fund: Identifying Growth-oriented Mid-cap Stocks

00:00 00:00

Welcome to  PersonalFN's weekly analysis on diversified equity mutual funds! In this issue, we have analysed Kotak Emerging Equity Fund, highlighting its performance, peer comparison, investment strategy, fundamentals, portfolio, and suitability.

Kotak Emerging Equity Fund is a well-managed Mid Cap Mutual Fund that has delivered benchmark-beating returns across various market phases and rewarded investors with noteworthy risk-adjusted returns.

Growth of Rs 10,000 if invested in Kotak Emerging Equity Fund 5 years ago

Launched in March 2007, Kotak Emerging Equity Fund is a midcap-biased fund that seeks to identify the hidden growth potential of mid-sized companies. The fund is of the view that since mid-cap companies are relatively under-researched, they can provide opportunities to exploit the gaps between the prevailing market price and intrinsic value. Kotak Emerging Equity Fund was primarily a mid and small-cap fund but was recategorised as a Mid-cap Fund to align with SEBI’s classification norm. The fund now holds a mid-cap biased portfolio, along with significant exposure to small caps and a balanced allocation towards large caps. The fund holds a sizeable portfolio of about 70 stocks spread across sectors by utilising a bottom-up investment strategy. Kotak Emerging Equity Fund stood strong in the 2018-19 mid-cap crash even as many of its peers struggled to keep pace with the market returns, thus turning out to be one of the top performers in the category. It also performed reasonably in the ensuing bull phase by outpacing the category average. With a compounded annualised return of around 18.8% over the past 5 years, Kotak Emerging Equity Fund has significantly outperformed its benchmark Nifty Midcap 150 – TRI index. Notably, the index has appreciated at 17.1% CAGR during this period. An investment of Rs 10,000 in Kotak Emerging Equity Fund 5 years back would have grown to Rs 23,637. A simultaneous investment in the benchmark would now be worth Rs 22,002 over the same period.

Graph 1
Past performance is not an indicator of future returns
Data as on July 05, 2023
(Source: ACE MF)
 

Kotak Emerging Equity Fund's performance vis-á-vis category peers

Scheme Name Corpus (Cr.) 1 Year 2 Year 3 Year 5 Year 7 Year Std Dev Sharpe
Quant Mid Cap Fund 1,973 31.07 18.99 40.63 22.87 19.10 18.64 0.47
Motilal Oswal Midcap Fund 4,508 38.31 28.97 40.13 19.33 16.99 17.18 0.52
PGIM India Midcap Opp Fund 8,549 22.16 14.20 38.25 21.49 18.97 17.43 0.50
SBI Magnum Midcap Fund 10,145 29.48 18.58 37.34 19.55 15.31 16.66 0.50
HDFC Mid-Cap Opportunities Fund 39,296 42.24 20.33 36.28 17.73 17.60 16.68 0.48
Nippon India Growth Fund 15,165 34.06 19.10 35.86 19.49 17.83 17.11 0.46
Edelweiss Mid Cap Fund 3,011 30.10 14.73 35.54 18.36 18.01 17.45 0.46
Kotak Emerging Equity Fund 27,871 28.71 14.72 34.17 18.76 17.86 15.79 0.48
Mahindra Manulife Mid Cap Fund 1,208 32.44 14.93 32.67 18.58 -- 17.17 0.42
UTI Mid Cap Fund 7,729 27.17 13.48 31.92 16.53 14.82 16.97 0.42
Nifty Midcap 150 - TRI 33.97 15.56 33.97 17.07 17.30 18.00 0.42
The securities quoted are for illustration only and are not recommendatory
Returns are point to point and in %, calculated using the Direct Plan-Growth option. Those depicted over 1-Yr are compounded annualised.
Data as on July 05, 2023
(Source: ACE MF)
Please note, this table only represents the best-performing funds based solely on past returns and is NOT a recommendation. Mutual Fund investments are subject to market risks. Read all scheme-related documents carefully before investing. Past performance is not an indicator for future returns. The percentage returns shown are only for indicative purposes.
 

Kotak Emerging Equity Fund holds a superior track record of generating market-beating returns over longer time periods. Even though the fund may sometimes trail in the benchmark, it has the potential to perform well in the long run. In the last 1-year and 2-year period, Kotak Emerging Equity Fund's performance was competitive to the category average, even though it trailed the benchmark Nifty Midcap 150 - TRI. Over the longer 5-year and 7-year time frame, Kotak Emerging Equity Fund stands among the category toppers and ahead of the benchmark.

In terms of risk-reward parameters, the volatility registered by Kotak Emerging Equity Fund is nearly in line with the benchmark index but slightly higher than the category average. Its Sharpe ratio (0.48), signifying risk-adjusted returns, is much higher when compared to the category average as well as the benchmark.

Kotak Emerging Equity Fund: Identifying Growth-oriented Mid-cap Stocks
Image source: www.freepik.com - photo created by creativeart
 

Join Now: PersonalFN is now on Telegram. Join FREE Today to get 'Daily Wealth Letter' and Exclusive Updates on Mutual Funds

 

Investment strategy of Kotak Emerging Equity Fund

Classified under the Mid Cap Fund category, Kotak Emerging Equity Fund is mandated to invest a minimum of 65% of its assets in mid-cap stocks. Accordingly, the fund holds a predominant mid-cap biased portfolio. It holds significant exposure across large-cap and small-cap stocks as well. Kotak Emerging Equity Fund makes well use of diversification and invests over 70 stocks spread across sectors in its portfolio. The fund aims to identify the hidden potential of mid-sized companies by utilising the bottom-up stock selection approach. It seeks to invest in companies that are either at their nascent or developing stage and are under-researched but have the potential to deliver higher growth in the long term. The scheme aims to invest across sectors and follows a buy-and-hold strategy to derive the full potential of the stocks. Notably, the fund has had a very low portfolio churning rate of less than 5% in the last one year.

As an AMC, Kotak endeavours to invest in stocks, which, in the opinion of the fund manager, are priced at a material discount to their intrinsic value. The process of discovering the intrinsic value is through in-house research supplemented by research available from other sources. The potential of stocks is guided by considerations such as the financial parameters of the company, reputation of the management and their track record, companies that are less prone to recessions or cycles, companies that pursue a strategy to build strong brands for their products or services, market liquidity of the stock, and so on.

Top portfolio holdings in Kotak Emerging Equity Fund

Graph 2 Graph 2
Holding in (%) as of May 31, 2023
(Source: ACE MF)
 

Kotak Emerging Equity Fund usually holds a fairly large portfolio of stocks spread across sectors. As of May 31, 2023, the fund held as many as 78 stocks in its portfolio, with the top 10 stocks comprising around 31% of its assets. Supreme Industries is currently the top holding in its portfolio having an allocation of about 4.2%, followed by Cummins India, Schaeffler India, Persistent Systems, and PI Industries, among others. Most of these stocks have been a part of its portfolio for over two years now.

Names like Schaeffler India, Persistent Systems, Solar Industries India, Cummins India, Bharat Electronics, and SKF India have contributed immensely to the fund's performance in the last 2 years. It also benefitted hugely from its holdings in Thermax, SRF, Oberoi Realty, Supreme Industries, Ratnamani Metals & Tubes, APL Apollo Tubes, PI Industries, and AU Small Finance Bank, among many others.

In terms of sector, Engineering tops the list of allocation with an exposure of 22.5% followed by Financial Services at about 12.5%. All other sectors have allocation well within the 10% mark. Consumer Durables, Auto Ancillaries, Pharma, Construction, Fertiliser, and Cement are among the other core sectors in the fund's portfolio. The top 10 sectors together account for around 74.1% of its assets. Though Kotak Emerging Equity Fund's portfolio is inclined more towards Cyclicals and Sensitive sectors, it is fairly diversified to Defensive sectors as well.

Suitability

Kotak Emerging Equity Fund has a successful track record of generating superior returns across various market phases. It has done exceptionally well in the past few years and has established a robust long-term performance track record. The fund has stood strong during difficult market conditions and has participated well during upside market movements. Notably, its asset size has grown tremendously in the last couple of years driven by its superior performance.

Kotak Emerging Equity Fund carries an impressive track record under the supervision of Mr Pankaj Tibrewal, who is known for his expertise in the mid and small-cap space. The fund's focus on identifying high-conviction quality stocks in the mid-cap space and holding it with a long-term view has worked in its favour. Moreover, the fund has delivered in terms of risk-adjusted returns.

Kotak Emerging Equity Fund is suitable for investors who can bear the higher volatility associated with the mid-cap space and have a time horizon of at least 5-7 years.

Note: This write up is for information purpose and does not constitute any kind of investment advice or a recommendation to Buy / Hold / Sell a fund. Returns mentioned herein are in no way a guarantee or promise of future returns. As an investor, you need to pick the right fund to meet your financial goals. If you are not sure about your risk appetite, do consult your investment consultant/advisor. Mutual Fund Investments are subject to market risks, read all scheme related documents carefully.

 

DIVYA GROVER is the co-editor for FundSelect, the flagship research service of PersonalFN. She is also the co-editor of DebtSelect. Divya is an avid reader which helps her in analysing industry trends and producing insightful articles for PersonalFN’s popular newsletter – Daily Wealth letter, read by over 1.5 lakh subscribers.

Divya joined PersonalFN in 2019 and has since then used stringent quantitative and qualitative parameters to analyse funds to provide honest and unbiased research to investors. She endeavours to enable investors to make an informed investment decision and thereby safeguard their wealth.


Disclaimer: Investment in securities market are subject to market risks, read all the related documents carefully before investing.

Disclaimer: This article is for information purposes only and is not meant to influence your investment decisions. It should not be treated as a mutual fund recommendation or advice to make an investment decision.

 

DISCLOSURE AS PER SECURITIES AND EXCHANGE BOARD OF INDIA (RESEARCH ANALYSTS) REGULATIONS, 2014

About the Company including business activity

Quantum Information Services Private Limited (QIS) was incorporated on December 19, 1989.

QIS was promoted by Mr Ajit Dayal with an objective of providing value-based information/views on news related to equity markets, the economy in general, sector analysis, budget review and various personal products and investments options available to the Public. It was the first company to start equity research on an institutional level.

'PersonalFN' is a service brand of QIS and was started in the year 1999. In 1999, the Company registered the Domain name www.personalfn.com for providing information on mutual funds and personal financial planning, financial markets in general, etc. and services related to financial planning and research in various financial instruments including mutual funds, insurance and fixed income products to customers. It offers asset allocation and researched investment recommendations through its financial planning services.

Quantum Information Services Private Limited (QIS) is registered as Investment Adviser under SEBI (Investment Adviser) Regulations, 2013 and having Registration No.: INA000000680. In terms of the second proviso to Regulation 3 (1) of SEBI (Research Analysts) Regulations, 2014 the Company is not required to obtain Certificate of registration from SEBI.

Disciplinary history

There are no outstanding litigations against the Company, its subsidiaries and its Directors.

Terms and condition on which its offer research report

For the terms and condition for research report click here.

Details of associates

  1. Money Simplified Services Private Limited;

  2. PersonalFN Insurance Services India Private Limited;

  3. Equitymaster Agora Research Private Limited;

  4. Common Sense Living Private Limited;

  5. Quantum Advisors Private Limited;

  6. Quantum Asset Management Company Private Limited;

  7. HelpYourNGO.com India Private Limited;

  8. HelpYourNGO Foundation;

  9. Natural Streets for Performing Arts Foundation;

  10. Primary Real Estate Advisors Private Limited;

  11. HYNGO India Private Limited;

  12. Suresh Lulla;

  13. I V Subramaniam.

Disclosure with regard to ownership and material conflicts of interest
  1. ‘subject company’ is a scheme on which a buy/sell/hold view or target price is given/changed in this Research Report;

  2. Neither QIS, it's Associates, Research Analyst or his/her relative have any financial interest in the subject Company; except for one of the Research Analysts holding units of Kotak Emerging Equity Fund;

  3. Neither QIS, it's Associates, Research Analyst or his/her relative have actual/beneficial ownership of one per cent or more securities of the subject Company, at the end of the month immediately preceding the date of publication of the research report;

  4. Neither QIS, it's Associates, Research Analyst or his/her relative has any other material conflict of interest at the time of publication of the research report except that QIS (PersonalFN) is, as per SEBI (Mutual Funds) Regulations 1996, an associate / group Company of Quantum Asset Management Company Private Limited and Trustees and Sponsor of Quantum Mutual Fund (QMF) and to that extent there may be conflict of interest while recommending any schemes of QMF. However, any such recommendation or reference made is based on the standard evaluation and selection process, which applies uniformly for all Mutual Fund Schemes. The payment of commission (upfront / annualized & trail), if any, for any Schemes by QMF to QIS (PersonalFN) is also at arm's length and as per prevailing market practices.

Disclosure with regard to receipt of Compensation
 
  1. Neither QIS nor it's Associates have received any compensation from the subject Company in the past twelve months;

  2. Neither QIS nor it's Associates have managed or co-managed public offering of securities for the subject Company;

  3. Neither QIS nor it's Associates have received any compensation for investment banking or merchant banking or brokerage services from the subject Company;

  4. Neither QIS nor it's Associates have received any compensation for products or services other than investment banking or merchant banking or brokerage services from the subject company in the past twelve months.

  5. Neither QIS nor it's Associates have received any compensation or other benefits from the subject Company or third party in connection with the research report

General disclosure
  1. The Research Analyst has not served as an officer, director or employee of the subject Company.

  2. QIS or the Research Analyst has not been engaged in market making activity for the subject Company.

Click here to read PersonalFN's Mutual Fund Rating Methodology

Subject Company means Mutual Fund Schemes

Quantum Information Services Private Limited CIN: U65990MH1989PTC054667 Regd. & Corp. Office: 103, Regent Chambers, 1st Floor, Nariman Point, Mumbai - 400 021

Email:info@personalfn.com Website: www.personalfn.com Tel.: 022 61361200 Fax.: 022 61361222 SEBI-registered Investment Adviser. Registration No. INA000000680, SEBI (Investment Advisers) Regulation, 2013



Add Comments