PGIM India Midcap Opportunities Fund: Benefitting from Quality Mid-cap Stocks

PGIM India Midcap Opportunities Fund is one of the well-managed funds in the Mid-cap Fund category that has turned out to be an outperformer through its focus on identifying quality mid-cap stocks.

Past performance is not an indicator of future returns
Data as on June 28, 2022
(Source: ACE MF)

PGIM India Midcap Opportunities Fund has registered superior performance in the last few years and has managed to generate an alpha of around 7% to 13% CAGR over its benchmark Nifty Midcap 150 - TRI Index. The recent outperformance has helped the fund improve its long-term performance as well, and it has managed to generate a significant lead over the category average and the benchmark across time periods. Over longer time periods of 5-year and 7-year, the fund has a clear lead over its benchmark and the category average.

On risk-return parameters, PGIM India Midcap Opportunities Fund has encountered higher volatility (25.04%) when compared to its category peers but is still much lower than the benchmark. The fund's superior outperformance over the last few years has helped it generate higher risk-adjusted returns for investors. Its Sharpe ratio (0.30) is currently the highest in the Mid-cap Funds category.

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

Investment strategy of PGIM India Midcap Opportunities Fund

PGIM India Midcap Opportunities Fund is a midcap fund that is mandated to invest a minimum of 65% of its assets in mid-cap stocks (defined as stocks between 101 to 250 ranked as per market capitalisation), whereas a maximum of 35% in stocks of other companies, as well as Cash, Money Market, and Debt Securities. The fund looks to identify quality midcap stocks which can benefit from a favourable economic environment based on extensive research and a thorough selection process.

PGIM India Midcap Opportunities Fund follows a combination of the top-down and bottom-up approach to select quality mid-cap stocks across sectors and gives higher weightage to valuation parameters as well as growth, margins, asset returns, and cash flows, amongst others.

The fund holds top 40%-45% of its portfolio in 'Stable Growth' stocks i.e. companies with stable earnings and strong earnings visibility (of 14-16%); mid 40%-45% of the portfolio is in 'High Growth' stocks i.e. companies with strong earnings growth (of above 20%); and bottom 10%-20% of the portfolio in 'Turnaround' stocks i.e. Turn around stories and good companies going through bad times with significant potential for alpha generation.

PGIM India Midcap Opportunities Fund invests in a well-diversified portfolio of 50-55 stocks, limiting exposure to single stocks within the 5% mark. Although the fund follows a buy-and-hold investment strategy, it is nimble in its approach and does not hesitate to churn a small portion of its portfolio to capture attractive opportunities in the mid-cap segment. In the last 12 months, PGIM India Midcap Opportunities Fund has registered a turnover ratio between 100% to 140%.

As of May 31, 2022, PGIM India Midcap Opportunities Fund held a fairly diversified portfolio of 48 stocks. The top-10 stocks accounted for around 35.3% of its assets, with names like ABB, HDFC Bank, TVS Motor Company, Timken India, Persistent Systems, Ashok Leyland, Cummins India, Varun Beverages, Dalmia Bharat, Bharat Forge, etc. appearing in its top 10 holdings.

In the last one year, PGIM India Midcap Opportunities Fund has gained the most from its holding in The Indian Hotels Company, SKF India, L&T Technology Services, Sagar Cements, Cummins India, and Coforge, among others. It has also booked substantial profits in stocks like Dixon Technologies (India), Mphasis, Quess Corp, Jubilant FoodWorks, Polycab India, IRCTC, MTAR Technologies, etc.

PGIM India Midcap Opportunities Fund is benchmark agnostic, holding a low overlap of 30%-35% with the benchmark and is overweight on sectors which are currently underbought. In terms of sector holdings, the fund's portfolio is majorly exposed to Engineering (18.5%), followed by Banking & Finance stocks with a combined allocation of about 14.5%, followed closely by Pharma, Auto, Infotech, Consumption, and Consumer Durables with an allocation of around 4% to 8%.

Suitability

PGIM India Midcap Opportunities Fund has shown a turnaround performance in the last few years and has the potential to generate market-beating returns in the long run at a reasonable risk. The fund focuses on investing in high-quality growth stocks of mid-sized companies. The nimble approach followed by the fund managers helps it take advantage of stock and sectoral rotations during positive as well as negative market conditions.

Even though the fund follows an active investment strategy and has a penchant to churn a major portion of its portfolio, it has shown a lot of patience with many of its quality stocks and sectorial bets, which have paid off its investors in due course. Such an approach may work in favour of the fund in the long run.

PGIM India Midcap Opportunities Fund is suitable for investors with a high-risk appetite looking for an actively managed Mid-cap Fund with an investment 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