Performance Overview

Since its inception in May 2017, the fund has demonstrated solid growth, turning a ₹1 crore investment into ₹3.91 crore (IRR 17.98% after fees), compared to ₹3.17 crore for the Nifty 50.

During Q1 FY25, the fund experienced underperformance in January and February due to a lower banking weight but saw a strong rebound in March. Despite April’s volatility, the fund has maintained its track record of outperforming the index.

Portfolio Repositioning and Macro Perspective

The fund remains strategically positioned to navigate evolving macroeconomic challenges. Market-linked taxes are expected to decline from 5% to approximately 3% of gross revenue, which could constrain capex spending. As a result, the portfolio remains underweight in capex plays.

The narrowing leadership within the NSE-500 index has led to a more concentrated portfolio approach. The number of holdings has been reduced from approximately 39 to 25–32, with an increased focus on top-weighted names.

Sector Insights

Large-Cap Banks: Improved inter-bank liquidity and normalized credit-deposit gaps point to a positive outlook. Incremental deposits are trending upward, and ROA expansion is anticipated from H2 FY25. Key holdings include HDFC Bank, ICICI Bank, and Bajaj Finance.

Staples (Contrarian Approach): Rural inflation has enabled price hikes, while companies like ITC and Marico have strengthened their distribution networks. Volume and margin improvements are expected over the next 4–6 quarters.

Pharma/Healthcare: Despite challenges related to US tariff rhetoric, the sector benefits from CDMO tailwinds (e.g., Piramal Pharma). Hospitals and branded generics have been retained, with positions adjusted to account for volatility.

Flow Dynamics and Deployment

Foreign institutional investors (FIIs) are expected to turn net buyers within the next two months, driven by peak valuations in US tech and persistent risks in China.

For new mandates, approximately 70% of assets are invested on day one, rising to 80–85% during earnings season. A cash reserve of 10–15% is maintained for tactical opportunities.

Outlook for FY25

The fund targets an alpha of +5 percentage points over the Nifty 50 price return, which is forecasted at ~9–10%. This will be driven by recovery in banking ROA, FMCG margin expansion, and concentrated portfolio positioning.

Potential risks include deeper tax shortfalls, earnings downgrades (base case at +9% versus Street estimates of +14%), and tariff shocks. However, policy support and renewed FII flows serve as positive tailwinds.

Summary

With a shift from diversification to a more concentrated approach, 70% of the portfolio is now allocated across three conviction clusters. By focusing on ROA recovery, pricing power, and returning FII flows, the fund aims to deliver strong performance in FY25.