Mutual Funds

IDFC Sterling Equity: INVEST

Parvatha Vardhini . C | Updated on October 19, 2013


The year 2012 clearly belonged to mid-cap stocks, with the valuation of the BSE and CNX Mid-cap indices zooming from about 14 times at the beginning of the year to about 22 times and 18 times respectively towards the close.

But corrections since then have been equally pronounced.

Today, quality mid-cap stocks trade at reasonable valuations, making it a good investment opportunity for those willing to stomach some risk. Seen in this light, the IDFC Sterling Equity fund, which invests about 50-60 per cent of its holdings in mid- and small-cap stocks across market cycles, is a decent bet.

Performance and Strategy

The fund, which has been in existence for a little over five years now, sports a good track record of consistency. It has clocked a rolling return of over 90 per cent in this period.

This implies that there is a 90 per cent chance that an investment in the fund at any point in time during a year beats the benchmark.

Over longer terms of three and five years, the fund has outdone the returns of not only its benchmark (CNX Mid-cap), but also the Nifty and the broader CNX 500 index.

What plays down the risk a bit in this fund when compared to other mid-cap funds is its defensive asset allocation pattern.

During times of market volatility or uncertainty, the fund takes cash and debt calls, thus helping limit losses. But the fund is also quick to ramp up on equities after that, to cash in on any potential rallies.

This is what it did during 2009, moving up from a 68 per cent allocation to equities during the March lows to 95 per cent by July. Ditto with the 2011 market fall vis-à-vis the 2012 rally.

In 2012, the fund clocked 45 per cent returns (CNX Mid-cap — 39.5 per cent), on par with funds such as ICICI Pru Discovery, and better than funds such as HDFC Mid-cap Opportunities.


The fund’s defensive strategies are obvious in its sector choices too, with consumer non-durables, software and, to an extent, pharmaceuticals being among the preferred options since mid-2009. Burgeoning valuations in consumer non-durables has seen exposures to this sector pruned since mid-2012.

However, the fund has ramped up on pharma since then. Exposures to banking and finance stocks have been cut in the last few months.

Quality mid-cap stocks in the current portfolio include Amara Raja Batteries, eClerx, Hexaware and Britannia Industries. Recent exits include Godrej Consumer and Glenmark Pharma while recent entrants are Adani Ports and MRPL.

The NAV per unit of the growth option is Rs 20.41. Aniruddha Naha is the fund manager.

Published on October 12, 2013

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