Bajaj Finserv has launched its Large and Midcap Fund which will focus on investing in businesses with strong business moats.
This segment of stocks – also known as quality compounders –is characterized by high RoEs and secular growth trends. Quality stocks have underperformed the market since 2020 as capital intensive sectors outperformed amidst the ongoing infra boom and manufacturing renaissance.
Nimesh believes it’s time for rotation into quality stocks as markets seek to move from overvalued pockets to those that haven’t run up as much. This is an opportune time to invest in quality compounders as they complete elongated time corrections.
Nimesh stresses that the fund house is not married to anyone style, but each fund does have its distinctive style. So, while their flexicap fund focuses on growth style of investing and picks stocks that participate in identified mega trends, the new large and midcap fund will focus on quality compounders – businesses with strong and deep moats.
Focus on quality means usually investing in sector leaders while mega trends investing can mean investing in a set of good stocks that play into a particular mega trend.
Nimesh does not expect this new fund to focus only on a few sectors as he sees good quality leaders across most sectors qualifying within the consideration set for the fund.
Two good reasons why this fund is an attractive opportunity now: (1) Money is rotating out from small caps into large caps on relative valuation basis, and (2) money is rotating out from lower quality capital intensive businesses to strong moat compounders – again on relative valuation basis. This fund aims capture both these shifts.