JM Midcap Fund: Sailing to Benefit from the Growth Potential of Midcaps

Nov 02, 2022

Listen to JM Midcap Fund: Sailing to Benefit from the Growth Potential of Midcaps

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India is at the cusp of multiyear growth as economical, political and demographic factors all align, and sustainable progress in the consumption story and related sectors is expected in the years to come. With the entry of new sectors more heavily represented in the midcap segment, markets have expanded.

Indian Midcaps provide a greater variety of sector allocation in a more balanced manner as compared to the Nifty Index. New economy and higher growth sectors like pathological labs, asset management companies and industrials are fairly represented in Midcap Index compared to Nifty. Midcaps currently present a very attractive opportunity for investors from a valuation standpoint to create a long-term portfolio.

Investing in the mid-cap and small-cap space that offers scope for alpha creation requires a long-term investment timeframe. Midcaps offer the right combination of size, growth & opportunity. India's midcap index compares favourably with Dow Jones and China's MSCI midcap providing exposure to future growth. However, these midcap stocks are known for their volatile nature; focusing on quality while selecting mid-cap stocks ensures that the portfolio experiences lower volatility. Prolonged investments in midcap funds can help you earn optimal returns over the long term and assist in navigating the volatility better.

JM Mutual Fund has launched JM Midcap Fund; it is an open-ended equity scheme predominantly investing in mid-cap stocks. The scheme, with its unique in-house GeeQ model for stock selection, offers investors an opportunity to benefit from the strong growth potential of the midcap companies over the long term.

Speaking on the launch of the NFO, Mr Amitabh Mohanty, MD & CEO at JM Financial Asset Management Ltd., said, "JM Midcap Fund is an important addition to our bouquet of funds, and we believe the fund is expected to take advantage of the India story over the next few decades. I am sure our strong equity team led by Satish Ramanathan will strive to deliver risk-adjusted returns basis going forward."

Further, Mr Satish Ramanathan, CIO - Equity at JM Financial Asset Management Ltd., added, "Considering the global factors and the need to address the volatility, this Midcap offering will have an i-STeP option to invest during the NFO period in which the investors have the option to stagger their investment."

Table 1: Details for JM Midcap Fund

Type An open-ended Equity scheme predominantly investing in mid-cap stocks. Category Midcap Fund
Investment Objective To provide long-term capital appreciation/income by investing predominantly in Mid-Cap companies. There is no assurance that the investment objective of the scheme will be realised.
Min. Investment Rs 5,000 and in multiples of Re 1/- thereafter. Additional Purchase Rs. 1,000/- and in multiples of Re. 1/- thereafter. Face Value Rs 10/- per unit
SIP/STP/SWP Available
Plans
  • Direct
  • Regular
Options
  • Growth
  • Income Distribution Cum Capital Withdrawal (IDCW)
Entry Load Not Applicable Exit Load
  • In respect of each purchase / switch-in of Units, an Exit Load of 1.00% is payable if Units are redeemed/switched out within 180 days from the date of allotment.
  • No Exit Load is payable if Units are redeemed/switched out after 180 days from the date of allotment.
  • No Entry / Exit Load shall be levied on units allotted on Reinvestment of Income Distribution cum Capital Withdrawal Option.
Fund Manager
  • Mr Satish Ramanathan
  • Mr Chaitanya Choksi
Benchmark Index NIFTY Midcap 150 (Total Return Index)
Issue Opens October 31, 2022 Issue Closes November 14, 2022
(Source: Scheme Information Document)
 

The investment strategy for JM Midcap Fund will be as follows:

JM Midcap Fund follows a predominantly Midcap strategy with a minimum exposure of 65% to Mid-Cap stocks. The scheme may also seek participation in other equity and equity-related securities to achieve optimal portfolio construction.

Equity strategy will aim to predominantly build a portfolio of mid-cap companies which have:

  • Reasonable growth prospects

  • Sound financial strength

  • Sustainable business models

  • An acceptable valuation that offers potential for capital appreciation.

JM Midcap Fund: Sailing to Benefit from the Growth Potential of Midcaps
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The scheme endeavours to follow a process-driven stock selection and portfolio construction along with well-defined guardrails for risk management and a proprietary GeeQ model (Growth of Earnings (Ge) and Earnings Quality (eQ). This model will assist the fund manager in-stock selection by identifying midcap companies with high growth and quality.

The scheme aims to maintain a reasonably diversified portfolio at all times. The scheme may also invest a certain portion of its corpus in debt and money market securities. Investment in debt securities will be guided by credit quality, liquidity, interest rates and their outlook. The scheme may also invest in hybrid securities, viz. units of REITs and InvITs for diversification and subject to necessary stipulations by the SEBI from time to time.

Under normal circumstances, the asset allocation will be as under:

Table 2: Asset Allocation for JM Midcap Fund

Instruments Indicative Allocations (% of Net Assets) Risk Profile
Minimum Maximum High/Medium/Low
Equity and Equity-Related Instruments of Mid Cap companies 65 100 High
Equity and Equity Related Instruments other than above 0 35 High
Debt Securities and money market instruments (including TREPS) 0 35 Low to Medium
Units issued by REITs and InvITs 0 10 Medium to High
(Source: Scheme Information Document)
 

About the benchmark

NIFTY Midcap 150 index represents the next 150 companies (companies ranked 101-250) based on full market capitalisation from NIFTY 500. This index intends to measure the performance of mid-market capitalisation companies.

Who will manage the JM Midcap Fund?

Mr Satish Ramanathan and Mr Chaitanya Choksi will be the designated fund managers for this scheme.

Mr Satish Ramanathan is a CFA, MBA and holds a B. Tech degree. He has a total work experience of around 3 decades. Prior to joining JM Financial AMC, he had an entrepreneurial endeavour called Tattva Capital. He started his career with TATA Economic Consultancy Services and has subsequently worked with ICICI Securities, Franklin Templeton AMC and Sundaram AMC.

At JM Mutual Fund, Mr Ramanathan currently manages JM Lage Cap Fund, JM Flexicap Fund, and JM Value Fund.

Mr Chaitanya Choksi is a CFA and holds an MMS (Finance) degree, and has around 20 years of work experience in the field of equity research and fund management. Prior to joining the AMC, he has worked with Lotus India Asset Management Company Pvt. Ltd., Chanrai Finance Private Limited, IL &FS Investsmart and UTI Investment Advisory Services Ltd.

At JM Mutual Fund, Mr Choksi currently manages JM Tax Gain Fund, JM Arbitrage Fund, JM Focused Fund, JM Flexicap Fund, and JM Equity Hybrid Fund.

 

Fund Outlook - JM Midcap Fund

JM Midcap Fund aims to predominantly invest in mid-cap stocks from the Nifty Midcap 150 universe. The scheme seeks to invest in high-growth midcap companies benefiting from demographic and structural trends.

The scheme offers investors exposure to fast-growing and new-age businesses by investing in stocks of emerging midcap companies. The fund manager will focus on quantitative outcomes and follow an in-house proprietary model called GeeQ for stock selection. It is a well-defined portfolio construction process which endeavours to tap investment opportunities across the midcap market spectrum.

Investment in midcap stocks offers key access to emerging high-growth sectors & companies that may turn out to be future large caps. Since the mid-cap segment is currently trading at a discount to its long-term average, investors can get more fund units at lower valuations. Mid-cap companies respond to new technology and market changes more swiftly as they tend to be more specialised and concentrated in their niche. Midcaps provide diversification to your portfolio, and exposure to high-growth stocks have the potential to outperform the market.

Although the scheme offers a diversified portfolio of relatively high-quality businesses within the midcap segment, do note that midcaps are highly volatile than large-cap stocks. The scheme being actively managed, the fund manager's ability to construct the Midcap portfolio in the prevailing market condition remains to be seen.

In addition, JM Midcap Fund will be prone to intensified market volatility in the near term due to the persistent repercussions of the geopolitical tension, spiralling inflation, and the RBI's hike in policy rates again to curb demand and control inflation, may cause a significant risk to the economic growth. Quality mid-cap stocks may deliver high returns, but they also exhibit high volatility, as they are more exposed to price corrections during an economic downturn or volatile market phase. These factors, among many others, could have a bearing on the scheme's performance.

Thus, this scheme is suitable for savvy investors who understand the mid-cap market space and are willing to adopt the high-risk and high-return investment strategy. However, mid-cap and small-cap funds may not do well in the near future; you must invest in them only if you have a high-risk appetite and a long horizon of at least 5-7 years.

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Warm Regards,
Mitali Dhoke
Research Analyst

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