Best mid- and small-cap mutual fund managers 2022

The gatekeepers at mass-market equity funds have had to dig deep to manoeuvre their portfolios through these trying conditions. The growth-driven style tilt favoured by many of these seasoned practitioners faced the tempest of the market’s swing towards value. Even as conditions continued to be far from conducive, they have drawn on years of experience to hold their nerve. In this year’s ET Wealth-Morningstar Fund Manager Rankings, we tell the tales of some of these market mavens who have not wavered from their paths and focused on making their portfolios resilient for the years to come. These individuals rank among the top money makers for ensuring healthy outcomes for investors over the long run. Our study looks at the five-year track record of equity schemes and identifies the best performers across three distinct categories on the basis of risk-adjusted returns.

The fund managers insist that a growth-bias will deliver superior outcomes in a market like ours. While multiples for this basket have been pegged back amid recent market volatility, they are adamant that business models are not broken and remain on a strong footing to weather turbulences. Yet, even as many are comfortable sitting on the ‘growth’ side of the fence, they acknowledge the need to be responsive to changing market realities and have made subtle changes to give their funds an edge.

Aniruddha Naha

AGE: 47 YEARS
EDUCATION
Masters in Finance & Control
EXPERIENCE
22 years
PROFILE
Even as Aniruddha Naha moves on from mutual funds to alternates, he ends his current role with a strong track record. At the centre of Naha’s investing framework is the firm belief that the past is a strong indicator of a company’s DNA. He turns to the established track record for assessing business credentials. He shuns leveraged businesses, emphasizes on strong operating cash flows and clean corporate governance. He avoids bets on sectors with high or rising competitive intensity. He insists that a weak environment for mid and small caps is actually a positive as it gives the opportunity to build resilient portfolios. It helps build positions at a reasonable valuation, which helps in the next leg of rebound and growth.

QUICK TAKE
My reading of the market
The mid cap segment has some promising businesses with high possibility of becoming large caps. The near-term challenge is valuations. India is reasonably isolated from global debt problems which will benefit this segment. Over the medium term, it should deliver good earnings growth.
How my fund is positioned
It is well positioned to capture domestic growth with exposure to financials, consumer and capital goods and engineering. We are underweight in IT and commodities due to their global linkages.

Anupam Tiwari

AGE: 44 YEARS
EDUCATION
Chartered Accountant
EXPERIENCE
14 years
PROFILE
Tiwari is acutely conscious of the fatality rate in the world of small caps. He embraces this reality with a firm emphasis on risk, rather than return. He runs a low-beta portfolio in Axis Small Cap. Unwilling to overpay, he is comfortable paying a premium for better portfolio hygiene. Not swayed by market cycles, he maintains the market is finally driven by earnings. As finding good stocks is not always possible, he has often preferred to stay in cash. If you can’t get out of a position at the right time, you can get badly stuck, he observes.

QUICK TAKE
My reading of the market scenario
As our economy is growing and we are looking at bigger export opportunities, the potential for smaller companies is looking robust. Better talent and better access to risk capital is enabling smaller companies to convert opportunities into profits.
How my fund is positioned
We run a granular portfolio of stocks with a tilt in favour of high quality businesses with scalable business model. We are sector agnostic.

Shreyash Devalkar

AGE: 43 YEARS
EDUCATION
Bachelor in Chemical Engineering & MMS
EXPERIENCE
17 years
PROFILE
Shreyash Devalkar retains his strict quality-biased lens for Axis Midcap. His preference within the mid cap space is for businesses that either have leadership position within a niche area or challenge bigger rivals in a larger arena. While leaning towards growth, he emphasizes on sustainability and scalability of growth. He has realigned his mid cap portfolio towards B2B companies to suit postpandemic realities. In recent years,with more businesses participating in earnings uptick, Devalkar has been comfortable expanding the portfolio size. His stance is more diversified to allow for a better liquidity profile. He also prefers retaining sizeable presence in large caps rather than opting for small caps. He often takes tactical cash calls to provide additional downside protection to the fund in certain market conditions. This reflects in a superior risk profile compared to its peers, despite recent struggles.

QUICK TAKE
My reading of the market
Mid cap stocks have substantial representation in B2B categories. Consolidation in some sub-segments, increasing opportunities for export and capex in short cycle segments is driving growth. This category will remain interesting, especially B2B oriented opportunities in India.
How my fund is positioned
We have increased exposure to B2B oriented opportunities across auto ancillary, chemicals and capital goods. We remain underweight in mid cap financials.

Samir Rachh

AGE: 53 YEARS
EDUCATION
Bachelor of Commerce
EXPERIENCE
31 years
PROFILE
Samir Racch believes diversification is a virtue in small caps. Nippon Small Cap is an outlier on this front, housing more than 150 stocks. Racch insists one is better off diversifying heavily in small caps rather than showing conviction. If ideas go wrong in this space, one can lose badly. This approach also gives him the strength to stay in the game when conditions turn tricky. While he concedes a long tail can be dilutive, he maintains winners among top 20-25 bets compensate for it. Despite the fat portfolio, the quality of business and management remains a focus area, avoiding cheap stocks. One important learning for Racch is to identify mistakes early and take timely action. Whenever there is exuberance in this space, he has found sense in selling off some holdings that can generate cash to buy later.

QUICK TAKE
Reading of the market
Chances are high that coming decade will be India’s decade. If our hypothesis proves correct, there would be many opportunities in small cap space in years to come. Communication, transparency and governance levels are much higher in small caps than before, reducing risks.
Fund position
India will need capacities and that’s good for capital goods sector. We are also very bullish on entire consumption space.

Pankaj Tibrewal

AGE: 43 YEARS
EDUCATION
Master’s in Finance
EXPERIENCE
18 years
PROFILE
His focus on protecting the downside allowed Pankaj Tibrewal to remain calm even as market preferences leaned away from his preferred hunting ground. With a remit to stick with quality businesses and ensure enough diversification, he has resisted the temptation to move lower down the quality ladder. He believes making fewer mistakes helps achieve better outcomes rather than hunt for multi-baggers. The probability of conversion is low and mortality rates are high in the mid and small cap space, he insists. And sharp re-rating in businesses do not necessarily imply long term potential. Even though the near term environment is tricky, he feels the market will present lots of opportunity.

QUICK TAKE
Reading of the market
Valuations of broader markets are no longer cheap. Though valuations have still not reached 2017 extremes, near term consolidation or drawdowns cannot be ruled out. Investors should moderate their expectations and invest only with a long term view.
How fund is positioned
The fund is well diversified and holds sector leaders with strong balance sheets. We believe the big will become bigger. Manufacturing and capex cycle will revive, along with residential real estate which can create bigger multiplier impact.