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What is your medium-term outlook on equity markets?
Markets will remain positive considering earnings growth in large and mid cap segments.
The government's emphasis on GDP growth through defense, infrastructure and railway sectors has proven beneficial for the economy.
Additionally, India is likely to attract a significant amount of foreign institutional investments (FIIs), which could further boost economic growth.
Given these factors, we could anticipate double-digit growth in the near future.
Considering the fact that mid cap funds delivered healthy returns over the last five years, why do you think that mid cap funds will continue to deliver stellar returns?
Mid cap stocks tend to perform well when the economy is growing quickly. If we expect the GDP to keep rising over the next few years, mid cap stocks should continue to do well in the market.
Additionally, foreign institutional investor (FII) flows into mid and small cap stocks play a significant role. If these flows remain positive, it will be beneficial for mid cap sectors.
Looking at earnings growth, mid cap stocks have seen a 48% increase from 2020 to 2024, which makes up a big part of the index. Even if we see slightly lower growth rates, say around 25% to 30%, on a higher base in the next 2 to 3 years, we could still see healthy returns.
Talking about MOSL Midcap Fund, the fund has outperformed its benchmark in 3-year and 5-year returns. What are the three things that have worked for this fund?
Over the past 4 to 5 years, our sector call has been successful. We initially focused on the IT sector and were overweight in it. However, in 2021, when we noticed that IT valuations were becoming expensive, we shifted our focus to banks. As banks performed well and reached high valuations, we then moved to capital goods. Later on, we returned to the IT sector and these strategic shifts benefited our portfolio. Currently, we are overweight on telecommunications.
Our success wasn't just in sector allocation but also in stock selection within those sectors. It was challenging but we managed to pick the right stocks, which significantly contributed to our performance.
Additionally, we made timely exits from stocks with high valuations.
Inspite of being a mid cap fund, the fund has a good 36% to large cap and 14% in small cap stocks, shows Value Research data. What’s the reason for this?
Our current allocation stands at 70% in mid cap, 20% in large cap, 6% in small cap and 3% in cash. We have a higher allocation in large cap compared to small cap due to expensive valuations in the small cap segment observed in February. However, following a correction in March, we have increased our allocation to small cap stocks.
Why should MFDs recommend Motilal Oswal Midcap Fund to their clients?
Our portfolio typically consists of 25 to 30 selected companies that prioritize both high growth and quality with long-term growth potential. The Return on Equity (ROE) of our portfolio exceeds 20% and our profit after tax is expected to grow by approximately 35% over the next two years. We anticipate that our fund will outperform the market by generating mid to high single-digit alpha over the next 2 to 3 years.
Motilal Oswal Midcap Fund has completed 10 years; can you tell us how this journey was?
The fund journey has seen both outperformance and underperformance. Initially, the fund performed in the market for the first 3 to 4 years. However, as the COVID-19 pandemic struck, the fund faced challenges and underperformed during that phase. Fortunately, as the impact of COVID decreased, the fund regained momentum and surpassed its previous performance, recovering all losses incurred during the pandemic.
Looking ahead, we believe the fund is well-positioned to continue its strong performance.
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