Motilal Oswal Mutual Fund MD & CEO Attributes Market Outperformance to Growth Investing
With an impressive track record of over 30% compounded returns, the Motilal Oswal Large & Midcap Fund has emerged as the top-performing diversified fund in the last three years. Similarly, the Motilal Oswal Midcap Fund has also claimed the top spot in its category. Prateek Agrawal, the Managing Director and CEO of Motilal Oswal Mutual Fund, attributes this success to a focused growth investment strategy that capitalizes on emerging market opportunities, even as benchmark indices have remained relatively stagnant over the past year.
Investment Philosophy: Growth Over Value
Motilal Oswal’s investment approach is centered around growth investing, which involves purchasing stocks with high growth potential rather than those undervalued based on intrinsic worth. Agrawal explains that while value investing focuses on buying stocks at lower prices due to temporary setbacks, his firm prioritizes companies that exhibit consistent growth over time. This strategy aligns with the belief that market performance ultimately follows earnings growth. By concentrating on newer market segments, the fund aims to leverage the changing landscape of investment opportunities, thereby outperforming both its categories and broader market benchmarks.
Identifying High-Growth Stocks
The firm employs a unique investment philosophy known as QGLP, which stands for Quality, Growth, Longevity, and Price. This framework, established by founder Raamdeo Agrawal nearly 25 years ago, aids in identifying businesses that demonstrate sustained high growth at reasonable valuations. Agrawal illustrates this with examples of various companies, emphasizing that while short-term spikes in growth can be enticing, the focus should be on companies that can deliver steady growth over the long term. This disciplined approach has proven effective in generating favorable outcomes for investors.
Portfolio Management and Risk Strategy
Motilal Oswal’s funds are characterized by a high tracking error, often exceeding 90%, indicating a deliberate deviation from benchmark indices. Agrawal acknowledges that this strategy entails a level of risk, but it is a calculated one aimed at achieving growth that surpasses the expected 12% from the index. The firm avoids large-cap banks and IT stocks, which typically yield lower growth, and instead focuses on sectors poised for substantial expansion. This results in minimal overlap with index compositions and competitors, as the fund steers clear of industries facing disruption, such as traditional coal companies and internal combustion engine vehicle manufacturers.
Active Portfolio Churn and Focus on Scalability
Motilal Oswal’s funds exhibit a turnover ratio exceeding 100%, significantly higher than the industry average. This frequent portfolio adjustment is driven by the need to capitalize on varying sector performances. Agrawal explains that the firm employs automated profit booking to manage successful themes while actively encouraging fund managers to reassess underperforming stocks. This strategy not only keeps the portfolio fresh but also fosters competition among holdings. The firm maintains a focused portfolio, typically comprising 20-35 stocks, and avoids small-cap companies to ensure scalability and impactful outcomes for investors. While some funds explore international stocks, Agrawal emphasizes their commitment to domestic growth investing, asserting that their expertise lies in building high-conviction portfolios of Indian businesses.
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