• Maheswaran Hariharan

AssetPlus NFO Review: Canara Robeco Mid Cap Fund

Canara Robeco Mutual Fund House has launched an NFO, which is open for subscription from November 11th, 2022, and closes on November 25th, 2022.


Investment Objective: To generate wealth over the long term, suitable for investors having a high-risk appetite who are comfortable with notional losses in the short term for long-term growth.


Investment Strategy: The fund emphasizes on Nifty Midcap 150 Index(Listed stocks on NSE from 101 to 200). The fund will invest at least 65% of its portfolio in Midcap stocks, and the remaining 35% can be in any other Equity market cap/Debt Instruments. The focus is to create returns that can outperform the benchmark by active fund management. The fund focuses on investing in robust growth-oriented companies displaying competent management at reasonable valuations


Fund Manager: Ajay Khandelwal and Shridatta Bhandwaldar


Benchmark: S&P BSE 150 Mid Cap Index TRI


Fund Management Process:

  1. The fund follows active management, expecting to generate alpha over the long term.

  2. The selection criteria are majorly from S&P BSE 150 Mid Cap Index

  3. The portfolio is constructed through the following process by including three types of stocks:

  4. Compounders - Companies with stable earnings growth

  5. High Growth - Companies with superior earnings backed by rising market share and industry consolidation.

  6. Turnaround Beneficiaries - Companies with favorable cyclical earnings with efficient capital and capacity utilization.

  7. Companies with a lack of free-cash-flow, low ROE/ROCE, and high leverage will be excluded.

  8. The fund will undergo active re-balancing based on valuations and market opportunities.

Opportunity:


Midcaps historically have been a strong component of India’s growth story. They find the sweet spot between the secure large caps and the risky small caps. Midcaps offer growth much faster than the broader market, which is S&P BSE 500 Index.


Source: MIFE, ICRA Online

Midcaps are traditionally more volatile than the large caps in the short run but are way more diversified than large caps amongst various sectors. They offer exposure to emerging themes and markets.

Source: Elara Capital, ICICI Securities

Midcaps offer exposure to emerging themes and markets, which can be fruitful as the Indian economy grows and expands in the coming years.


Based on our analysis, we have observed the following pros and cons


Pros:

  1. Focuses on companies that have the potential to become large-caps.

  2. Process-driven and internalized modeled approach

  3. Completely Sector Agnostic.

  4. Active fund management having the ability to generate superior returns.

  5. Growth Story of India fuelled by this segment

Cons:

  1. Mostly limited to just Nifty Midcap 150 Universe

  2. Can underperform for relatively medium periods of time

  3. Higher levels of drawdowns when compared to Large-caps

Canara Robeco, as an AMC, is known for its effective risk management to deliver consistent returns. The current scenario for mid-caps looks favorable as they have just now come out of a bear market phase. Historically, there have been remarkable periods of returns when they exit a time if there is a huge recession or series of economic downturns. It is important to allocate a decent amount of investments in this category if there is a time horizon of more than 7 years and a high-risk appetite.





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