The Hindu Business Line : Kotak Mid-Cap: Hold

UNITHOLDERS of Kotak Mid-Cap can retain their holdings. The fund has delivered a return of 32 per cent since its launch in February. Its performance over the past six months closely matches that of several new mid-cap funds launched over the past year in a bid to capitalise on the boom in mid-cap stocks.

As the market appears to be going through a bumpy road at the moment, investors may be better off sticking to a fund with a proven track record.

Mid-caps also tend to be hit harder than large-caps in a market downturn, as demonstrated in the recent weeks.

Mid-cap funds, therefore, have a higher risk profile and conservative investors would do well to keep their exposures to such funds to the minimum.

Kotak Mid-Cap's performance, so far, has managed to keep pace with top performing funds in this space, such as Sundaram Midcap and Franklin Prima. Kotak Mid-Cap's investment style is distinct from these two funds in one respect — it invests in far fewer stocks.

As of September 30, Sundaram Midcap and Prima had 78 and 56 stocks in their portfolios respectively. Kotak Mid-cap, with an asset base comparable to Sundaram Midcap, has only 35.

Mid-cap funds, often associated with liquidity issues, tend to have a larger number of stocks in their portfolios to tackle this problem. Kotak Mid-Cap's top holdings include MRF, Britannia and Automotive Axles, where volumes tend to run thin. These stocks, incidentally, are not part of the fund's benchmark, the CNX Nifty Junior.

About a third of the fund's portfolio is, however, invested in stocks with a market capitalisation of more than Rs 2,000 crore, where liquidity risks are lower. Stocks in its fold include Siemens, Bank of Baroda and i-flex solutions, which have graduated to the realm of large-cap stocks. The fund also has the mandate to invest up to 30 per cent in large-cap or small-cap stocks. This means when liquidity in the market starts to wane, it can switch to more liquid, large-cap stocks.

Picks such as Bharat Earth Movers, Gujarat Gas, Maharashtra Seamless, EIH and EID Parry have delivered handsome returns for the fund.

The portfolio's price-earnings multiple is now 28, indicative of the sharp run-up in prices. The top sectors — capital goods, media and auto ancillaries — account for about 40 per cent of the total assets.

Fund facts: Kotak Mid-Cap was launched in February 2005. It has an asset base of Rs 345 crore. The minimum investment amount is Rs 5,000.

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