L&T India Value. L&T India Value: Scores with focus on quality stocks

Funds that follow a value-investing strategy could be better placed to ride out the ongoing market volatility and uncertainty. L&T India Value is a good choice in this category.

Its value-investing approach with a focus on quality stocks limits downside risk and offers scope for gains.

At the same time, the fund’s multi-cap approach gives it the flexibility to shift allocations across market caps and increase or reduce risk, depending on changing market conditions.

L&T India Value has a robust track record. With annualised returns of about 16 per cent and 25 per cent over three and five years, it has convincingly beaten its benchmark BSE 200 (by 7 to 11 percentage points) and figured in the top quartile in the multi-cap category.

The fund’s one-year performance, though, is less impressive with its 13.6 per cent return being close to the category average. Even so, it has outperformed the benchmark by about 1.5 percentage points and maintained its record of beating the benchmark almost all the time on a daily-rolling annual return basis over the past few years.

The market volatility in recent months tripped the fund more than some others in its category — likely due to its significant exposure to mid-caps and to PSU banking stocks such as PNB that took a severe beating. That said, a quarter or even a year is too short a period to judge performance.

Also, value opportunities created by the market fall and the fund’s ability to adjust asset allocations could see it recoup.

Exposure to smaller stocks has aided L&T India’s returns, but comes with risk attached. This is mitigated, though, with the fund’s value focus, a bottom-up stock picking strategy and large portfolio of stocks (about 80 currently) that reduces concentrated exposures.

 

 

Many caps

Currently, about 95 per cent of the fund’s portfolio is in equities — about 65 per cent of the corpus is in large-caps (market cap of more than ₹15,000 crore) and 30 per cent of the corpus is in mid- and small-caps.

The fund’s exposure to smaller stocks has reduced from about 50 per cent as of February 2017 — indicating nimbleness with changing market scenarios.

The allocation to smaller stocks has varied from more than half the portfolio during the bull run of 2014 to less than a quarter during the difficult market of 2013.

Exposure to large-caps went up to even 80 per cent during iffy markets — for instance, in August 2013. The fund also takes cash calls when needed — about 18 per cent of the corpus was in cash equivalents during the weak market in early 2016; this was gradually deployed in equities in the subsequent rally.

Good stock calls

L&T India Value has displayed fine stock-picking prowess across market caps over the past few years.

Small stocks such as KNR Constructions as also big ones such as HPCL picked cheap and held for more than three years have tripled to quadrupled.

Picks such as West Coast Paper Mills and Reliance Industries have also yielded rich returns. The fund also books gains on stocks that may have run up sharply. For instance, it sold Lumax Auto and IFB Industries last year.

Over the past year, the fund has increased stake in private sector banks while paring holdings in beleaguered PSU banking stocks.

Exposure to pharma stocks has gone up, likely sensing value opportunities. Stake has also been upped sharply in construction and chemical stocks.

Sugar stocks, though, have been exited. Banks and finance companies remain the fund’s largest exposure.

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