The Hindu Business Line : HSBC Midcap: Hold

Sticking to its mandate means the fund might be more affected in market downturns than its peers, when mid-caps tend to bear the brunt of the selling pressure.

Unitholders can retain HSBC Midcap as the fund has performed well over the past year. Its returns of about 30 per cent outpace that of the BSE Midcap Index significantly.

The fund is not the top performing in the mid-cap space, lagging the likes of Sundaram Midcap, Magnum Midcap and Birla Midcap over this period. However, its performance can be viewed more favourably considering that it abides by its mandate more strictly.

The fund invests in stocks with a market capitalisation ranging from Rs 75 crore to the largest market capitalisation of the BSE Midcap Index.

As of July 30, Shree Cements was the only stock in its portfolio that had a market cap greater than Rs 3,000 crore.

Most of its peers, however, invest at least 20 per cent of their assets in stocks above this market-cap range.

The strict adherence to the mandate means that the fund may be affected more in market downturns than its peers, when mid-caps tend to bear the brunt of the selling pressure. It may also be subject to liquidity risks. However, HSBC Midcap's relatively small asset base enables it to invest in smaller-cap stocks without significantly affecting its liquidity.

The fund has acquitted itself reasonably well in the recent meltdown, which inspires confidence.

Fresh exposures need not be considered, as the fund is yet to notch up a track record. However, unitholders may stay with the fund, in the light of its promising performance.

The fund has outperformed the BSE Midcap in seven of the past 12 months.

While its risk is in line with that of the benchmark, it has generated better returns on a risk-adjusted basis owing to superior stock-picking skills.

A greater tilt to technology and consumer stocks helped. Stocks such as Havells India, Shree Cements and Hotel Leela Venture delivered handsome returns for the fund over the past year.

Portfolio overview: HSBC Midcap is among the smaller mid-cap funds with an asset base of Rs 350 crore, having placed a ceiling on the fund size at Rs 700 crore at the time of the offer.

The portfolio consists of 35-40 stocks broadly picked from the benchmark index. Four of its top holdings — Hindustan Sanitaryware, Emco, Nucleus Software and Royal Orchid — have, however, been picked from outside the BSE Midcap Index. Software, engineering, pharma and media are a few sectors that the fund favours.

Fund Facts: The fund was launched in May 2005. The fund is jointly managed by Mr Mihir Vora and Mr Jitendra Sriram.

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