Kotak Emerging Equity Fund: Identifying High Growth Potential Mid-sized Companies

If you are an investor with a high risk profile and an investment horizon of at least 5-7 years, consider investing in a well-managed Mid-cap Fund to earn alpha-generating returns over the long term.

Kotak Emerging Equity Fund is a Mid-cap fund that has generated market-beating returns over the past few years and rewarded investors with superior risk-adjusted returns.

Data as on January 05, 2022
(Source: ACE MF)

In the last one year, Kotak Emerging Equity Fund has outpaced many of its peers and arrived among above-average performers, and has marginally outpaced its benchmark Nifty Midcap 150 - TRI. Over the 3-year and 5-year time frame, Kotak Emerging Equity Fund has generated a noticeable lead of around 1.5 to 2.5 percentage points over the category average. Whereas, over the longer 7-year period Kotak Emerging Equity Fund now ranks among the top quartile performers in the category and ahead of the benchmark.

On risk-reward parameters, though the volatility registered by the fund is slightly higher than the category average, it is much lower than the benchmark index. Its Sharpe Ratio of 0.28, signifying risk-adjusted returns, is much higher when compared to the category average as well as the benchmark.

Investment strategy of Kotak Emerging Equity Fund

Classified under the Mid Cap Funds category, Kotak Emerging Equity Fund has the mandate to invest a minimum of 65% of its assets in mid-caps. 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 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 a very low portfolio churning rate of 10%-20% in the last one year.

Kotak, as an AMC, endeavours to invest in stocks, which, in the opinion of the fund manager, are priced at a material discount to their intrinsic value. They discover the intrinsic value 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 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.

Kotak Emerging Equity Fund usually holds a fairly large portfolio of stocks spread across sectors. As of November 30, 2021, the fund held as many as 68 stocks in its portfolio, with the top 10 stocks together constituting around 33.9% of its assets. Supreme Industries is currently the top holding in its portfolio having an allocation of about 5%, followed by Persistent Systems, Schaeffler India, SKF India, Thermax, Sheela Foam, Solar Industries India Ltd., Coromandel International, Oberoi Realty, JK Cement, among others. Many of these stocks have been part of its portfolio for over two years now.

Names like Persistent Systems, APL Apollo Tubes, Sheela Foam, Solar Industries, Apollo Hospitals Enterprise, Schaeffler India, SKF India, and Thermax India contributed immensely to the fund's performance in the last one year. However, the fund lost some value in stocks like Amara Raja Batteries, Coromandel International, Exide Industries, Mahindra & Mahindra Financial Services, RBL Bank, City Union Bank, etc.

In terms of sector, Engineering tops the allocation list with an exposure of 21%, followed by Financial Services at 12.3%. All other sectors have allocation well within the 10% mark. Consumer Durables, Auto Ancillaries, Pharma, Cement, Consumption, Fertilisers, Chemicals, Fertilisers, Construction, Infotech, and Metals are among the other core sectors in the fund's portfolio. The top 10 sectors together account for around 74.7% of its assets.

Suitability

Kotak Emerging Equity Fund has a track record of generating superior returns across most market phases. It has done exceptionally well in the past few years. The fund has stood strong during difficult market conditions and has participated well during upside market movement. Though the fund's volatility is slightly on the higher side, it has delivered in terms of risk-adjusted returns.

The scheme also holds significant exposure to stocks in the large-cap and small-cap domains that can aid in diversification. Though Kotak Emerging Equity Fund's portfolio is inclined more towards Cyclicals and Sensitive sectors, it is fairly diversified to Defensive sectors. This could help the fund to cushion the downside risk and perform well over the complete market cycle.

Kotak Emerging Equity Fund is suitable for investors with a high risk appetite who can bear the higher volatility associated with the mid-cap space and invest with a long term horizon of at least 5-7 years.

Warm Regards,
Divya Grover
Research Analyst

PS: If you are looking for quality mutual fund schemes (including Equity-linked Saving Schemes) to add to your investment portfolio, I suggest you subscribe to PersonalFN's premium research service, FundSelect. PersonalFN's FundSelect service provides insightful and practical guidance on which mutual fund schemes to Buy, Hold, and Sell.

Currently, with the subscription to FundSelect, you could also get Free Bonus access to PersonalFN's Debt Fund recommendation service   DebtSelect.

If you are serious about investing in a rewarding mutual fund scheme, subscribe now!

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.

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

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.

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;

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.

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

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

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