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Motilal Oswal India Excellence Fund – Mid to Mega – Series II
Fund Snapshot
| Tenure of the Fund: | 5 yrs + up to 2 yrs |
| Lock in (from final closing): | 18 months |
| Exit Load: | 18 – 24months – 3%, 24 – 36months – 2%, 36 – 48months – 1%, Nil thereafter |
| Commitment period: | 12 months from final closing |
| Initial drawdown: | 30% of capital commitment for non-SIP class |
| Final closing: | 12 months from initial closing |
| Number of Stocks: | 15-20 |
M-Q-G-L-P Investment Philosophy
Midsize
- Benefit of low-base
- Well-established track record
Quality
- Quality of business x Quality of management
- Stable business, preferably consumer facing
- Huge business opportunity
- Sustainable competitive advantage
- Healthy financials & ratios
Growth
- Revenue growth and market share gains
- Growth in margin & profitability
- Reliable high growth flows
Longevity
- Long-term relevance of business
- Extending competitive advantage period
- Sustenance of growth momentum
Price
- Reasonable valuation, relative to growth prospects
- High margin of safety
Portfolio Positioning
Manufacturing with focus on Exports
Contract manufacturing is booming, and production-linked incentive schemes are putting a lot of spotlight on this topic.
IT Services
Covid was instrumental in reducing the five-year investment in digitalisation to less than three years. Many businesses across all industries have been pushed to shift and implement digital processes, resulting in increased digitisation spending.
Cyclical Recovery theme
A wager on cyclical recoveries as well as a proxy for infrastructure and real estate investments.
Financials – Non-Lending
Insurance should be viewed as a multi-decadal growth industry. In this digital environment, capital market intermediaries and fintech are industries to watch.
What is Mid to Mega?
Crossover by the company from Midcap to Mega cap category
- Achievement of critical mass & scale
- Recognition by markets of the same
The above transition is mainly seen in companies who are
- Industry leaders
- Industry Tailwinds
- Value migration beneficiaries
Classifying companies into Mini, Mid & Mega
| Mega | Top 100 companies | Extensively researched |
| Mid | 101st to 300th Companies | Under researched, under owned |
| Mini | 301st to 400th Companies | Under researched, under owned |
Investment Framework
Technology Enablers
- India’s IT exports at USD 150 Bn+ > Saudi’s Oil Exports
- Impact of Covid – Digital enablement is the need of the hour
- Talent Pool – Unparalleled IT engineer pool of 45 lakh which is expected to go to ~100 lakh
- India Cost advantage continues to sustain – Boston to Bengaluru
Platform Companies
- B2C Stack Established: India’s stack is unique – Cheap Data + Free payment rail (UPI) + Aadhar
- B2B Stack Emerging GST + OCEN (Open Credit Enablement Network) + ONDC (Open Network for Digital Commerce)
- India not a big horizontally integrated market yet – Likes of Amazon, Flipkart are still a small part of overall consumption pie
- Digital Rupee – Power of Programmability
Why Now?
- Investing in tomorrow’s leaders by focusing on companies in the midst of the economic cycle: High Growth Prospects
- Mid-cap stocks have typically outperformed others over time. In the long term, the mid-cap category has outperformed the large-cap and small-cap segments.
- 5 Year Rolling Return Comparison: The present alpha levels of Nifty Midcap 150 above Nifty 100 are still at 3%, but mean reversion could push it up to 7%.
- There is still plenty of room for growth in the Nifty Midcap100 vs the Nifty50. The Nifty Midcap 100/Nifty 50 ratio is a strong signal for investing in mid-cap stocks. The Mid Cap ratio peaked at 2.0 in 2018, and current levels imply that there is still opportunity for mid-cap growth, given that the trend line has been expanding over time.
