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HDFC Mid-Cap Opportunities Fund Growth
 
Morningstar's Take
|13/05/2022
by Kavitha Krishnan

HDFC Mid-Cap Opportunities stands out amongst peers based on the manager’s long-term association with the fund and his adherence to the process and investment strategy. Despite its large size, our confidence in the fund’s performance potential leads us to assign a Morningstar Analyst Rating of Silver on the direct share classes of this fund. The regular share class is rated Bronze.Chirag Setalvad's investment style has remained stable and consistent He sticks to his high-conviction ideas despite them being contrarian but is quick to take corrective action if required. Having said that, he also allocates some portion of the portfolio towards tactical short-term bets with a view to generate additional alpha. The strategy typically invests in smaller companies, as reflected by the fund’s average market cap versus its peers within the small/mid-cap Morningstar Category.In our opinion, Setalvad ranks amongst the best portfolio managers in the small/mid-cap category. He has been managing this fund since its inception in June 2007 and we view his long tenure at the fund house as a positive. Detailed and exhaustive research is central to his investment approach. Setalvad emphasizes on gaining an in-depth understanding of a business before investing. He seeks companies with proven track records, so he can gauge how they have held up during testing times.There is a perceptible quality bias in the investment style, characterized by investments in companies with strong management teams and robust business models. Setalvad combines absolute and relative valuation parameters to select stocks that aren't too expensive relative to their growth prospects. This is the largest fund in the category and investors should be mindful of the significant liquidity risks associated with the portfolio, which may limit the fund’s agility compared to smaller peers.Given the bias for quality stocks, we expect the fund to underperform the competition in market phases when speculative fare is in favor. Investors must also note that Setalvad’s tendency to make contrarian investments can result in a divergent showing versus the category over shorter time periods. Nonetheless, over a market cycle, we believe the fund is equipped to serve investors well.

Morningstar Analyst Rating™
Bronze
Portfolio Role
The fund’s mid-cap orientation makes it suitable as a supporting player in the portfolio.
Executive Summary
People: In our opinion, Chirag Setalvad ranks among the most accomplished managers in the small/mid-cap segment.
Parent: The fund house is headed in the right direction.
Process: Setalvad seeks quality companies from the mid-cap segment that he believes are reasonably priced.
Performance: The fund boasts a solid track record across the risk and return parameters over the long term.