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The equity markets have been bullish and are making fresh highs in recent days. Valuation concerns seem too have been brushed aside by investors. Valuation multiples are no doubt elevated across segments. But there are still pockets of inexpensive or relatively reasonably priced stocks available for the contrarian stock picker. By not going with the flow and considering out-of-favour picks, the outcomes may be rewarding over the long term despite short-term underperformance.
Kotak India EQ Contra has been a steady above-average performer over the years. The fund was rolled out in 2005 and has delivered a compounded annual return of 15.4 per cent (regular plan) since launch.
The scheme’s performance over the past decade has been robust and is among the quality performers across equity categories, despite occasional bouts of underperformance due to its contra style investing mandate.
Investors can consider Kotak India EQ Contra as a portfolio diversifier and take exposure via SIPs for a period of at least 7-10 years to reach long-term goals.
Picking up pace
In the last 7-10 years, the fund has improved considerably on the returns and consistency fronts. Kotak India EQ Contra has delivered 3-14 percentage points more than its benchmark – Nifty 500 TRI – over one, three, five and 10-year timeframes on a point-to-point basis. The scheme’s five-year CAGR of 26.4 per cent compares favourably with the best among the broader equity fund categories.
On a rolling five-year basis over January 2013 to August 2024, Kotak India EQ Contra (direct plan) has delivered an average return of 15.8 per cent annually, compared to 13.5 per cent for the Nifty 500 TRI over the same period.
Again, on a five-year rolling returns basis over the same 11-plus years’ timeframe, the fund has beaten the benchmark all the time (100 per cent).
The fund has given more than 15 per cent returns nearly 60 per cent of the time, and over 12 per cent returns for more than 81 per cent of the time.
If SIP returns (XIRR) are considered over the past 10 years, Kotak India EQ Contra has given a robust return of over 22 per cent. An SIP in the Nifty 500 TRI would have managed 18.2 per cent over the same timeframe.
The fund has an upside capture ratio of 109.3 – based on data over the past three years (2021-2024) – indicating that its NAV rises much more than the benchmark Nifty 500 TRI during rallies. But more importantly, its downside capture ratio is only 80.9, suggesting that the fund’s NAV falls much less than the benchmark during corrections. A score of 100 indicates that a fund performs in line with its benchmark.
Steady sector holdings
Kotak India EQ Contra holds a fairly steady position in as far as its portfolio holdings are concerned. Across market cycles, the fund has retained banks and IT companies among its top couple of holdings. The scheme has avoided going overweight on segments such as defence, PSUs or other such overheated sectors. As valuation comfort exists in pockets such as pharmaceuticals, the scheme has increased exposure to the segment in recent months. Power and petroleum products are other sectors where the fund has relatively higher exposure. Overall, there is a mix of value and growth styles in the fund without taking too much to fancied parts of the market.
Kotak India EQ Contra takes a multi-cap approach to stock selection across market cycles. While large-cap stocks are the preferred bets (usually more than 60 per cent of the portfolio), the fund had taken solid midcap bets last year. But the scheme hiked exposure to small-cap stocks in the last one year and has benefited from the rally in the segment.
In the recent June portfolio, the fund has 63.8 per cent exposure to large-caps, 15.8 per cent to midcaps and 18.7 per cent to small caps. The scheme remains invested across cycles with cash usually accounting for 1-3 per cent of the portfolio.
Kotak India EQ Contra takes a diffused exposure to individual stocks and sectors, with a well-diversified portfolio.
The fund is suitable for any investor with an above-average risk appetite, who can take short to medium timeframes of underperformance. Long-term investments, however, can be quite rewarding.
Taking the SIP route for 7-10 years is ideal for directing the instalments towards defined money targets.
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