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20 Mutual Fund Insight February 2017
The fund has delivered decent returns over one year amidst a highly volatile market
All values are estimates derived from monthly portfolio disclosures. The fund has net assets of `243 crore as on November 30, 2016.
Successful stocks with gains
(` crore) during Nov ’15–’16
Kansai Nerolac Paints
Top holdings with the asset
allocations (%) as on Nov 31, ’16
Losing stocks and the amount of
losses (` crore) during Nov ’15–’16
Stocks added during Apr–Nov ’16,
with asset allocations (%)
Tata Motors DVR
Aditya Birla Nuvo
Cholamandalam Inv & Fin Co.
State Bank of India
Oriental Bank of Commerce
Cholamandalam Inv & Fin Co.
About fund manager
The fund is managed by Mr Prashasta Seth. He has done
B.Tech from IIT Kanpur and PGDM from IIMA. He has
over 14 years of experience in investment management
and has worked with companies like JP Morgan.
The fund has a concentrated portfolio of fast-growing,
high-quality companies. It focuses on strong earnings
growth, cash-generating and capital-light business mod-
els, high ROE and ROCE, and attractive valuations.
Portfolio companies by market cap
Large caps Mid caps Small caps
Fund 64.82% 35.18 –
Nifty 50 99.06 0.94 –
Average stocks in the portfolio 20
One-year returns (as on Dec 26, 2016)
Fund 7.34% Nifty 50 0.6 Category 2.24
Beating the benchmark
November 30, 2015 December 26, 2016
800 Rebased to 1,000
IIFL India Growth Fund Nifty 50
Sector weights as compared to Nifty 50
Overweight Energy, financial, chemicals and
Underweight Technology, auto and FMCG
IIFL India Growth Fund
Mutual Fund Insight February 2017 21
High conviction, high returns
A concentrated portfolio with high-conviction bets is the secret of the fund’s success
What has resulted in the outperformance of your fund
over the last one year?
Our investment philosophy of taking concentrated bets
in high-conviction sectors and companies has resulted
in our fund outperforming last year. During the year,
we were overweight on financials with specific focus
on NBFCs and smaller regional banks. Our view was
that these segments would see better earnings growth
as compared to bigger banks. This strategy paid off
well. Bajaj Finance, Bajaj Finserv, Muthoot Finance
and Federal Bank were the major alpha creators in our
portfolio during the year.
How do you select stocks for your fund?
We mix bottom-up approach, along with a top-
down philosophy. We identify themes that
are likely to play out during the medium
term and look for companies within
them, which would benefit over the
medium to long term. Within
sectors, we look for companies,
which outperform industry peers
by a wide margin on various
earnings parameters and return
ratios. A detailed filter analysis,
both qualitative and quantitative,
is done for all the companies before
they are considered for investment.
Earnings visibility and sound
management quality are among the key
parameters we consider.
When do you decide to exit a stock?
There is no hard and fast rule for exiting a company,
which we have bought in our fund for the long term.
We have been holding some companies in various
portfolios for over five years because they have been
meeting our strict investment criteria consistently over
the years. We review our portfolio companies every
quarter. In case any of the companies fails to meet our
investment parameters repeatedly due to various
intrinsic or extrinsic factors, it would be excluded
from our portfolio.
Valuation is another aspect. If the valuation moves
above three standard deviations from its historical
average, we become wary and evaluate booking gains
in the counter.
How do you determine allocation across large, mid
and small caps?
We typically focus on high-quality large caps and mid
caps and avoid small caps. Our belief is that on a
relative-valuation basis and liquidity, large caps and
mid caps are better placed than small caps. We believe
there is an immense opportunity available among large
and mid caps in India. We might look at good quality
small caps if some interesting opportunity comes up.
Isn’t your portfolio too concentrated?
We firmly believe in having higher
weightage allocation towards companies
where we have high conviction. We
see no reason in making a portfolio
of 40–50 companies, which may
be a sign of lack of conviction in
what we are buying. We see no
reason why high-conviction ideas
should not see higher weightage
allocation in a portfolio. Also, the
smaller size of our fund gives us
the comfort and flexibility to
implement this view.
What can investors expect from your fund
We, as a fund house, would continue to implement
our investment philosophy of portfolio concentration
in companies and sectors. We believe 2017 could be a
testing time for all equity investors, considering that
we have entered the year with lot of uncertainties on
the domestic macroeconomic front post
demonetisation. Nevertheless, it would be a stock
picker’s market and we could get sound companies at
attractive valuations during the year. Consumption-
oriented companies could see some opportunities,
considering many of them have been beaten down in
the last couple of months. Banking is another sector,
which could provide opportunities in select stocks.
Prashasta Seth, Fund Manager, IIFL India Growth Fund