Invesco India Contra Fund: Identifying Opportunities in Out-of-favour Stocks

Categorised under contra-style funds, Invesco India Contra Fund follows a contrarian investment strategy and an against-the-tide investment approach. The fund managers look for temporarily ignored but fundamentally sound stocks and hold high conviction in their long-term growth potential. In the past, the fund has benefited from timely contrarian bets by investing in stocks and sectors that are temporarily out of favour and available at a significant discount to their fair valuation. As contra funds invest in 'out-of-favour' themes, they may temporarily underperform in the short term, and hence deserve patience.

Incepted in April 2007, Invesco India Contra Fund remained unnoticed during its first decade. However, its spectacular performance during the bull market phase of 2016-2020 helped it gain the attention of investors. In addition, the fund managed to limit the downside risk during the market crash of 2020 as compared to its category average and the benchmark. Moreover, the fund has also demonstrated commendable growth in the recent bull phase. With this, Invesco India Contra Fund has gained popularity among investors with its AUM now breaching the Rs 17,000 crore mark, having nearly doubled in the last two years.

An investment of Rs 10,000 made in Invesco India Contra Fund, 5 years back, would have appreciated by about 20.1% CAGR to be valued Rs 24,961. A simultaneous investment of Rs 10,000 in the benchmark BSE 500 - TRI would have been valued at Rs 22,146, at a growth of 17.2% CAGR.

Invesco India Contra Fund holds an impressive long-term track record and has witnessed significant growth under the supervision of its fund manager, Mr Taher Badshah and Mr Amit Ganatra, whose high conviction contra bets have been rewarding for investors in terms of returns. On a rolling return basis, the fund has consistently outperformed the benchmark BSE 500 - TRI over most time periods in the past. Over the long-term time frames of 5 years and 7 years the fund's rolling performance compared to the benchmark has been reasonable, wherein Invesco India Contra Fund has managed to generate an alpha of around 3-4.5 percentage points in CAGR. Although Invesco India Contra Fund has trailed its peers in recent years, its performance over the long-term time frames continues to be commendable.

Invesco India Contra Fund has shown reasonable volatility vis-a-vis its benchmark and peers. The fund's Sharpe ratio of 0.24 is ahead of the benchmark, but lower compared to its peers. Despite occasional setbacks, Invesco India Contra Fund's superior long-term track record and process-driven management style provides confidence about its long-term growth potential.

What is the investment strategy of Invesco India Contra Fund?

Invesco India Contra Fund follows a contrarian strategy where the fund managers pick 'neglected stocks' with strong asset values while focusing on under-owned sectors carrying high potential. The aim is to find stocks/sectors that are out of favour, in order to have a first-mover advantage in them, thus increasing outperformance prospects. In terms of asset allocation, the fund is mandated to invest a minimum 65% of its assets in equity and equity-related instruments and maximum 35% can be invested in cash, debt & money market instruments, etc. The fund also holds some exposure in Derivatives - Futures.

While managing Invesco India Contra Fund, the fund managers focus on undervalued stocks across sectors trading at a significant discount to their fair valuation with an aim to hold them in the portfolio until their intrinsic value is achieved. The fund managers employ a mix of the top-down and bottom-up approach to pick stocks and believe in incubating such stocks till they find favour with rest of the market. While the fund managers are in a constant hunt for stocks available at cheap valuations and look at timely entry and exit, moderate churning in Invesco India Contra Fund's portfolio cannot be ruled out.

Invesco India Contra Fund usually holds a well-diversified portfolio of 70-75 stocks at any point of time. As of January 31, 2025, the fund held a fairly diversified portfolio of about 68 stocks, with the top 10 stock holdings accounting for nearly 40.6% of its assets. Highly liquid names like HDFC Bank, ICICI Bank, Infosys, Axis Bank, and Mahindra & Mahindra currently appear among the top holdings in the fund's portfolio. L&T, NTPC, Apollo Hospitals Enterprise, REC, and Bharat Electronics, currently stand among the other top holdings in the portfolio. Most of these stocks have been among the core contenders in Invesco India Contra Fund's portfolio for over two years. It has a moderate portfolio turnover ratio of 70-80% to capitalise on dynamic market conditions.

Invesco India Contra Fund's prominent bets in ICICI Bank, Bharti Airtel (Rights Issue), NTPC, Mahindra & Mahindra, Bharat Electronics, and L&T contributed most to the fund's gains in the last two years. KEI Industries, Multi Commodity Exchange of India, Infosys, Ajanta Pharma, and Cholamandalam Investment & Finance Company, have stood among the other top gainers in the portfolio. Meanwhile, it has booked profits in Aavas Financiers, Vinati Organics, Havells India, Apar Industries, Max Financial Services, Container Corporation of India, Tata Motors, and Sun Pharma, among others.

In terms of sector concentration, the top five sectors in Invesco India Contra Fund's portfolio accounted for around 61% of its assets. The fund held higher weightage to Banking & Finance stocks collectively accounting for 31.3% of its assets, followed by Infotech, Pharma, Engineering, Consumption, and Retail with allocation in the range of 5-11% of its assets. It also holds diversification to Auto, Healthcare, Power, Consumer Durables, and Construction, among others.

Is Invesco India Contra Fund suitable for my investment goals and risk tolerance?

Invesco India Contra Fund follows a contrarian investment strategy to timely pick fundamentally sound stocks from sectors that are temporarily out-of-favour or beaten-down stocks that are available at a significant discount. Its long-term performance record is encouraging that speaks about its ability to create wealth for investors. The fund has been capable of delivering market-beating returns across various time periods and market cycles, which makes it a prime contender among the contra and value-style peers.

Moreover, Invesco India Contra Fund has recorded reasonable volatility vis-a-vis its benchmark and the category average. Its ability to generate higher returns at a reasonable amount of risk helps the fund reward its investors with decent risk-adjusted returns and alpha creation.

Invesco India Contra Fund has done well across various bull and bear market phases in the past to reward investors with healthy gains over complete market cycles. Notably, since the fund managers follow a contrarian approach to investing in out-of-favour stocks, it may take time for some of the bets to pay off.

Invesco India Contra Fund is suitable for investors aiming to benefit from the potential of temporarily beaten-down stocks/sectors and having a risk appetite and an investment horizon of at least 5-7.

Watch this video to know about the Contra Funds category in detail:

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. Registration granted by SEBI, Membership of BASL and certification from NISM no way guarantee performance of the intermediary or provide any assurance of returns to investors.

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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.
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 in the above-mentioned schemes.

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• Group Companies including:

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