Invesco India Growth Opportunities Fund: Benefitting from Astute Stock Picking

Apr 01, 2021

The S&P BSE Sensex continues to trade near the 50,000 mark, overcoming the temporary blip caused by the fears surrounding the second wave of coronavirus infections in India. This may point to investors ruling out the possibility of renewed lockdown clamps in the country.

Recently, the RBI governor expressed confidence that the new wave is unlikely to derail India's growth. He stated that the revival of economic activity will continue unabated.

If economic activities continue as expected, you could benefit immensely from equity investment. However, it is important to complement high growth with stability to earn better risk-adjusted returns. Investing in a mix of large-cap and mid-cap stocks through a well-managed large & mid-cap fund can serve this purpose.

Invesco India Growth Opportunities Fund (IIGOF) is one such large & mid-cap fund that focuses on picking quality businesses having solid growth potential.

Graph 1: Growth of Rs 10,000 if invested in Invesco India Growth Opportunities Fund 5 years ago

IIGOF focuses on investing in diverse portfolio of large-cap and mid-cap stocks having solid growth potential with an aim to perform consistently well across market conditions. The fund’s earlier track record was quite ordinary to give it an advantage over its peers. Nonetheless, over the past few years, IIGOF has shown significant improvement in its performance. With a growth of about 16.4% CAGR, an investment of Rs 10,000 five years back would have grown to about Rs 21,444. A similar investment in its benchmark S&P BSE 250 LargeMidcap 65:35 – TRI Index would have been valued at about Rs 21,079 at around 16% CAGR. Though IIGOF has not shown a clear trend of outperformance/underperformance in any particular market phase, it has managed to beat the benchmark on multiple occasions in the past.

Graph 1
Data as on March 31, 2021
(Source: ACE MF)
 

Table: Invesco India Growth Opportunities Fund's performance vis-a-vis category peers

Scheme Name Corpus (Cr.) 1 Year (%) 2 Year (%) 3 Year (%) 5 Year (%) 7 Year (%) Std Dev Sharpe
Mirae Asset Emerging Bluechip 15,785 87.88 22.57 19.36 22.47 25.37 22.79 0.188
Tata Large & Mid Cap Fund 2,104 75.05 18.38 15.07 15.53 16.83 21.60 0.142
Kotak Equity Opp Fund 5,177 73.47 17.52 14.89 17.32 18.07 21.75 0.144
Edelweiss Large & Mid Cap Fund 676 75.28 18.97 14.62 16.22 16.60 21.10 0.149
Canara Rob Emerg Equities Fund 7,922 74.36 18.27 13.99 19.38 23.71 22.35 0.133
DSP Equity Opportunities Fund 5,726 76.66 15.86 12.68 16.37 17.52 22.88 0.115
Sundaram Large and Mid Cap Fund 1,479 73.15 14.03 12.57 16.33 17.24 23.37 0.119
Principal Emerging Bluechip Fund 2,530 77.49 18.48 12.48 18.41 21.18 22.73 0.111
Invesco India Growth Opp Fund 3,660 63.23 13.67 12.45 16.40 16.89 20.97 0.123
Essel Large & Midcap Fund 109 74.95 13.61 12.30 16.27 -- 22.58 0.112
S&P BSE 250 LargeMidCap 65:35 Index - TRI 82.55 16.04 13.21 15.97 15.84 22.93 0.125
Returns are point to point and in %, calculated using Direct Plan - Growth option. Those depicted over 1-Yr are compounded annualised.
Data as on March 31, 2021
(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. Past performance is not an indicator for future returns. The percentage returns shown are only for indicative purposes.
 

IIGOF has put up a remarkable performance and a track record of outpacing the benchmark and many of its category peers over a longer time period. The fund has significantly trailed the benchmark and the category average in the last 1-year, which has affected its short-term performance. However, this has not impacted its long-term returns where it has maintained a decent lead over its benchmark S&P BSE 250 LargeMidCap 65:35 Index - TRI and many of its peers. It also stood strong in the recent market crash and managed to limit the downside risk for its investors.

On risk-return parameters, IIGOF's Standard Deviation of about 20.97, indicating the fund's volatility has been well below the category average (22.75) as well as the benchmark (22.93). Its Sharpe Ratio is superior to the category average and nearly in line with that of the benchmark. With this IIGOF has compensated its investors well for the level of risk taken.

Investment strategy of Invesco India Growth Opportunities Fund

Classified under large and midcap funds category, IIGOF is mandated to invest at least 35% of its assets in large caps along with at least 35% in midcaps. Accordingly, the fund house has decided to hold 55% to 60% of its portfolio into large caps and maintain about 35% allocation into mid-caps. The fund follows a process-driven investment strategy and strictly adheres to its mandate and investment philosophy. The fund house has positioned IIGOF as a growth oriented fund that will maintain minimum 75% of its portfolio exposure in growth and remaining into value.

While picking stocks, the fund looks out for stocks of companies with high growth potential. It follows a bottom-up and top-down approach to stock picking with no style bias. Invesco India Mutual Fund follows proprietary investment framework, used since the inception of the organization. It uses stock categorization framework, to break / bucket stocks into growth and value style of investment.

The fund house classifies growth stocks as...

  1. Leaders (Established companies in terms of profitability, typically mature companies, more of large caps along with few mid-caps. They have a track record of leadership, globally competitive.);

  2. Warriors (Young / established companies fighting for the market share and close the gap in terms of profitability - typically large and mid cap companies. They carry unique proposition and/or right place, right time);

  3. Stars (Fastest growing young companies (high growth) driven by entrepreneur vision, and scalability, small in size - mid and small caps).

The fund house classifies value stocks as...

  1. Diamonds (Companies with valuable assets, but available at discount of say 50-60%. Management intent to unlock value);

  2. Frog Prince (Prince earlier but going through stress. Companies in a turnaround situation, but hold intrinsic strengths in core business).

Graph 2: Top portfolio holdings in Invesco India Growth Opportunities Fund

Graph 2 Graph 2
Holding in (%) as on February 28, 2021
(Source: ACE MF)
 

IIGOF usually holds a well-diversified portfolio of about 40 to 45 stocks. As on March 31, 2021, the fund held 41 stocks in its portfolio, with the top 10 stocks together accounting for about 38.7% of the total assets. HDFC Bank, ICICI Bank, Infosys, Axis Bank, Ultratech Cement, IndusInd Bank, and Maruti Suzuki India are the large cap names that currently appear among the top holdings in the fund's portfolio. It also has mid cap names like Voltas, Mahindra & Mahindra Financial Services, and Mphasis among its top holdings.

Stocks like HDFC Bank, Bharat Electronics, ICICI Bank, Voltas, Ultratech Cement, etc. turned out to be the major gainers in IIGOF's portfolio that contributed significantly to its growth in the last one year period. It is noteworthy that in the last one year the fund's portfolio churning rate has increased sharply to more than 100% from around 45%.

IIGOF's portfolio is currently diversified across host of cyclical and defensive sectors. The fund holds its top exposure in Banks, currently accounting for around 23.6% of its assets with another 5.5% in Finance stocks. Infotech, Pharma, Consumer Durable, Auto and Auto Ancillaries, Consumption, and Engineering are the other top sectors in the portfolio with an allocation in the range of 5% to 9% each.

Suitability

Driven by strong investment systems and processes, IIGOF has a decent track record of timely identifying fundamentally sound stocks across market cap segment. The fund has been quick enough to identify sector trends and position the portfolio to benefit from upcoming opportunities.

While the fund at times remains heavyweight on cyclicals to ride the market boom and rallies, it also makes well use of the defensives during extreme market conditions. However, its heavyweight position towards few selected sectors may result in short term underperformance, if any of its core sector holdings disappoints or is under pressure. Besides, its performance may at times be in contrast to its peers that hold higher exposure to mid-cap stocks.

This makes IIGOF suitable for investors with high-risk appetite and a long-term investment horizon of at least 5 years.

Warm Regards,
Divya Grover
Research Analyst

 

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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.

 

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