Kotak Standard Multicap: Safety, with a large-cap bias

Multi-cap funds that take exposure to stocks across market capitalisation are a good bet in the current market conditions. Large-cap stocks in the portfolio will help contain downside in case a recovery in growth is prolonged and companies need strong balance sheets and deep pockets to tide over the tough times. Mid- and small-cap exposure will help ride on the rally if growth comes back sooner than later.

Kotak Standard Multicap is a good bet among multi-cap funds. The fund has a large-cap bias, takes some cash/debt calls and churns sectors well in accordance with market conditions. It follows a defensive approach among multi-cap funds and hence suits slightly conservative equity investors.

Multi-cap funds have the mandate to swing to different market cap segments based on the flavour of the season. But Kotak Standard Multicap tends to veer towards large-caps across all market conditions. It holds a maximum of only 20 per cent of its portfolio in mid- and small-cap stocks at any point in time. This comes in handy in volatile times where large-caps contain losses better than mid- and small-caps.

The fund is also a bit cautious on asset allocation and always has some exposure to cash and debt. The proportion goes up to 12 per cent of the portfolio in volatile/bearish market conditions. In the choppy markets of 2015 and 2016, for instance, the fund’s equity holdings stayed at 89-95 per cent. Even in bull markets such as 2017, it held its guard, never fully investing in equities. In the last one year, the fund has been holding about 90 per cent in equities on an average. It is only in the latest July 2020 portfolio that equity holdings have been moved up to 94 per cent.

Having missed on the rally since the March 2020 market low probably due to this reason, the fund has underperformed the benchmark — Nifty 200 TRI — and the category average returns in the last year. However, it has bettered the category average and the benchmark over a longer term of five years.

Portfolio choices

The scheme usually holds a portfolio of 50-60 stocks. It takes 5-10 per cent exposure to its top 2-3 stocks. Top stocks currently are Reliance Industries, HDFC Bank and ICICI Bank. Beyond this, the holdings are well-diversified. The fund holds 75 per cent in large-cap stocks and 18 per cent in mid and small-caps as of end-July.

The fund churns sectors well, piling on to defensives in iffy markets. Although the fund’s mandate allows it to bet on select sectors, its sector preferences are fairly well-spread.

Banking has been the top preference for many years. With the slowdown induced by the pandemic and fear of bad loans rising, the fund has steadily brought down allocations to banking this year. It has come down by almost 10 percentage points now, from about 28 per cent exposure levels in December 2019.

To tackle market volatility, consumer non-durable holdings were doubled to 10 per cent by July from January 2020 levels. Hindustan Unilever, Britannia and Godrej Consumer are among the bets in this space. Considering the high valuations, though, the fund seems to have periodically booked profits and re-entered the stocks to take advantage of market volatility.

Software holdings also increased this year, considering that this sector is among the less affected by the Covid disruption. It has upped stakes in Infosys and TCS.

It has slightly increased holdings in M&M and Hero MotoCorp, betting on rural recovery.

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