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Fund Manager Insight: Harsha Upadhyaya, CIO-Equity, Kotak Mahindra Asset Management
July 13, 2015

Harsha Upadhyaya answers our questions on Kotak Select Focus Fund.

Author : iFAST Research

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"Kotak Select Focus has made it to the iFAST Recommended Funds list for the first time in 2015. In this context, we spoke to Harsha Upadhyaya who has been managing this fund since August 2012 to get a deeper insight on the investment strategy of the fund. We also discussed the reasons as to why this fund should be a part of an Investors Core Portfolio."

Harsha Upadhyaya

Harsha Upadhyaya, CIO-Equity, Kotak Mahindra Asset Management

Q. 1. Kotak Select Focus has made it to our list of recommended funds for the first time .In this context; we would like to know the investment strategy of this fund in a nutshell

A. The investment philosophy of Kotak Select Focus is built on the premise that different sectors of the economy perform varyingly over different periods of economic cycle. The investment focus in the fund is to invest in select sectors that are likely to outperform broader market at various points of time. Once the sectors are selected through top-down analysis, the individual investment ideas within those sectors are picked up through bottom-up approach.

While it is a concentrated strategy at the sector level, we keep it diversified at stock level. Its investment mandate also provides flexibility to move across market capitalisation. Investments in mid/ small cap stocks can go up to 50 per cent of the portfolio. Generally, the mid/small cap allocation in the fund has remained between 20 and 35 per cent. The maximum cash level in the fund is restricted to 7.5 per cent of the corpus.

Q. PineBridge India Equity fund has been merged with Kotak Select Focus. How smoothly did the transition happen considering the fact that it was a flagship fund managed by Huzaifa Husain?

A. At the time of the merger, Pinebridge India Equity Fund's corpus was about 7-8 per cent of the overall merged portfolio size. There was also significant number of common stocks between two portfolios. These two factors helped a great deal in smooth merger without any considerable change in the portfolio of Kotak Select Focus. The sectors/stocks from Pinebridge fund that were not part of selected sectors in Kotak Select Focus were sold out.

Q. 3. Has the strategy of Kotak Select Focus changed since the time you took over the reins of this fund from Krishna Sanghvi in August 2012?

A. Investment strategy of the fund has remained the same as outlined earlier. Over the past 3 years, the investment focus has become more long term, with relatively low portfolio turnover. The portfolio now has a sharper focus with smaller tail.

Q.4. One of the biggest bets of this fund has been the Private Sector Banks. The RBI in its Financial Stability Report, June 2015, has said that the Public Sector Banks (PSBs) will be expected to continue to shoulder the needs of the accelerating growth in the economy. If this is the case, then why is the fund having a very small exposure into PSBs?

A. The concerns on PSBs are well known – talent, capital and asset quality. We are yet to see any concrete roadmap on setting right any of the above mentioned concerns. Until those issues are addressed, we believe the private sector banks will continue to gain market share from PSBs, especially in a scenario where credit growth is still under pressure. Hence, our banking sector exposure is largely tilted in favour of private sector banks/ NBFCs.

Q. 5. Could you tell us about the sectors that would not form a part of this portfolio for the next 1 year?

A. We do not like sectors and stocks that require capital on regular basis and those with high degree of leverage. We also tend to avoid companies that have high level of policy/ regulatory risk. We avoid betting on event based plays.

Q. 6. Please share with us three reasons as to why Kotak Select Focus should become a part of an Investors Core Portfolio

A. First of all Kotak Brand is one of the most trusted and respected names in the financial services. Kotak Select Focus endevours to deliver consistently superior risk adjusted returns by prudent portfolio construction and long term focus. The fund's investment mandate also provides flexibility to move across market capitalization – while large cap stocks provide stability, the midcap allocation provides potential kicker to overall returns. We believe that the fund is ideal for all regular equity investors who are seeking long term capital appreciation.

iFAST and/or its content and research team's licensed representatives may own or have positions in the mutual funds of any of the Asset Management Company mentioned or referred to in the article, and may from time to time add or dispose of, or be materially interested in any such. This article is not to be construed as an offer or solicitation for the subscription, purchase or sale of any mutual fund. No investment decision should be taken without first viewing a mutual fund's offer document/scheme additional information/scheme information document. Any advice herein is made on a general basis and does not take into account the specific investment objectives of the specific person or group of persons. Investors should seek for professional investment, tax, and legal advice before making an investment or any other decision. Past performance and any forecast is not necessarily indicative of the future or likely performance of the mutual fund. The value of mutual funds and the income from them may fall as well as rise. Opinions expressed herein are subject to change without notice.
Mutual Fund investments are subject to market risks. Please read all scheme related documents carefully.

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