How good is the Kotak Contra Fund IPO?

To generate capital appreciation from a diversified portfolio of equity and equity related instruments.

Kotak Contra Fund (KCF) works on the premise that equity markets keep throwing up investment opportunities for the discerning investor from time to time.

This comes by way of temporary bouts of under-valuation, which makes fundamentally strong stocks an attractive investment proposition for the investor. When markets turnaround, these stocks tend to get valued in line with their fundamentals and investors clock a return based on the uptick.

The fund has indicated that investors with an investment horizon of at least one year, should look at investing in the fund. In our view, that is too short a time frame for a value-style investment strategy to show results.

Investing in equities must be made with a minimum 3-year investment horizon and a predominantly value-based investment strategy might take even longer than that to fructify. In our view, investors in this fund should be looking at an investment a lot longer than what the fund has specified.

Given that Kotak Mutual Fund's equity funds have done little to redeem themselves over longer time frames (3-5 years), we believe that the contrarian/value investor's investment objective will be met better over the long-term by considering some of KCF's established peers like Templeton India Growth Fund and HDFC Capital Builder.

The fund proposes to pursue a bottom-up investment approach. This means that it will select stocks that coincide with its investment parameters, and only then consider the sectoral/industrial, economic and political factors affecting those companies.

In terms of an investment style, the fund proposes to pursue a contrarian style of investing. A cornerstone of this investment approach is that the mutual fund is constantly on the lookout for companies that are valued, even temporarily, below their actual valuations (based on book value). Given the contrarian nature of the fund, it foresees investing in typical 'value' stocks and 'growth' stocks depending on the under-valuation.

Nilesh Shah, 36, is a CFA and holds a PGDRM from the Institute of Rural Management, Anand (IRMA). During his association with the Kotak Group, he has handled assignments in the corporate finance and capital markets divisions before moving into equities.

Prior to joining the AMC (asset management company), Mr. Shah was Executive Director, Equity Strategy, at Kotak Securities Ltd. Mr. Shah is President of the AMC, and guides its equity strategy, among other responsibilities.