Small and mid-cap stocks provide a broader universe for portfolio building and give an edge in terms of returns over the market benchmarks, according to HSBC Mutual Fund's Venugopal Manghat.
"There are a large number of stocks we have unearthed that have given us the alpha. It has given us the edge over the benchmark," Manghat, chief investment officer-equity at HSBC Mutual Fund, told NDTV Profit on The Portfolio Manager show.
The fund follows a bottom-up approach in small and mid caps, he said.
Over 500 companies in the 250-800 bracket from among the top market cap stocks give diversity to the portfolio and help capture opportunities in emerging sectors that are tapping the equity markets for the first time, according to him.
Manghat—who manages seven funds with a total asset under management of Rs 42,231.8 crore—said the fund does its due diligence with respect to the companies' business prospects, management quality and floating stock to navigate liquidity issues in the space.
"As the fund size has grown on the small-cap side, we have been conscious of keeping the minimum market cap cutoff. We now look for scale, buy stocks in small quantity and build the portfolio over time," he said.
Outlook On IT Stocks, Industrials
Manghat said the fund has not been positive on large-cap IT stocks and valuations remain unattractive.
"We are looking at companies that can differentiate themselves and that gives them an edge over a long-term. We remain patiently invested in such stocks," he said, referring to small and mid-cap IT stocks in the portfolio, which includes KPIT Technologies Ltd. and Birlasoft Ltd.
The HSBC Multicap Fund has major allocations to industrial products (11.29%), IT-software (11.22%) and banks (11.03%).
Government push for infrastructure development and early signs of a private capex cycle is helping companies in the small and mid-cap industrial space. "We are positive on the space. The investment theme is a key contributor to the economy."
Exit Calls
"We don't use threshold returns to decide when to churn. It is on a case-to-case basis," Manghat said.
It is when business prospects turn negative and valuations run up beyond the comfort level that profit-booking is done and exposure is pared, he said.
Watch the full conversation here:
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