Bajaj Finserv Multi Cap Fund: Going against the tide of market sentiment

Investing in the stock market often involves following popular trends, buying stocks that are performing well, and selling those that are facing short-term challenges. However, some investors believe that better opportunities may be found in going against market sentiment. The Bajaj Finserv Multi Cap Fund follows this contrarian investment strategy, seeking to identify undervalued stocks that have strong fundamentals but are currently overlooked or out of favour in the market.

• Table of contents

1. What is contrarian Investing?
2. How Bajaj Finserv Multi Cap Fund implements contrarian investing
3. Identifying undervalued opportunities
4. Selling overvalued stocks
5. Balancing risk with multi cap investing
6. Who should consider investing in this fund?
7. The role of professional management
8. Common investor biases and how the fund aims to overcome them

What is contrarian Investing?

Contrarian investing is a strategy where investors take positions opposite to prevailing market trends. The idea is that markets sometimes overreact to news and events, causing certain stocks to become either overvalued or undervalued. By recognising these mispricings, contrarian investors seek to capitalise on the potential for long-term growth before the rest of the market does.

Key principles of contrarian investing:

• Going against market sentiment: Investing in stocks that are currently out of favour while avoiding those that are highly popular and potentially overpriced.
• Focusing on undervalued stocks: Identifying companies with strong fundamentals that are temporarily undervalued due to market sentiment.
• Long-term approach: Holding investments patiently until the market corrects itself and the stock’s true value is potentially recognised.
• Data-driven decision-making: Relying on thorough research rather than emotional reactions to market fluctuations.
• Minimising emotional biases: Avoiding impulsive buying during market peaks and panic selling during downturns.

How Bajaj Finserv Multi Cap Fund implements contrarian investing

The Bajaj Finserv Multi Cap Fund aims to leverage market inefficiencies by identifying investment opportunities in companies that are temporarily undervalued due to market overreactions. The fund managers will use fundamental analysis to assess stocks based on business cycles, management transitions, growth potential, turnaround stories, and temporary disruptions, among other factors.

Identifying undervalued opportunities

The fund looks will for companies that are facing short-term challenges but have strong long-term potential. Stocks that are temporarily undervalued due to investor sentiment or external factors present opportunities for long-term gains if the market corrects itself.

Selling overvalued stocks

During periods of excessive optimism, some stocks may become overvalued due to high demand. The fund may reduce its holdings in these stocks, reallocating capital to more attractive opportunities.

Balancing risk with multi cap investing

In addition to following a contrarian strategy, the Bajaj Finserv Multi Cap Fund diversifies investments across large cap, mid cap, and small cap stocks, with 25% allocation to each segment. Each market cap has its own features advantages:

• Large cap stocks offer relatives stability and established business models.
• Mid cap stocks offer more growth potential than large caps with less volatility than small caps
• Small cap stocks carry higher risk but can offer significant long-term growth potential.

Who should consider investing in this fund?

The Bajaj Finserv Multi Cap Fund could be suitable for investors who:

• Are looking for long-term investment opportunities and have a horizon of 5+ years
• Are comfortable with market volatility in the short term and have a high risk appetite
• Seek a diversified portfolio with disciplined to different market segments.
• Are seeking to invest in undervalued opportunities

The role of professional management

Contrarian investing requires expertise, patience, and confidence, as it involves identifying mispriced stocks and waiting for the market to potentially recognise their value. Professional fund managers handle the research, analysis, and portfolio allocation, making this strategy accessible even to investors who may not have the time or expertise to manage investments independently.

Common investor biases and how the fund aims to overcome them

Investor behavior often influences market trends, leading to mispricing. Here are some common biases and how the Bajaj Finserv Multi Cap Fund seeks to counter them:

• Herd mentality: Investors often follow market trends without analysing fundamentals. The fund actively seeks opportunities in stocks that are currently out of favour.
• Recency bias: Short-term market performance can lead to overconfidence or fear. The fund maintains a disciplined approach by focusing on long-term fundamentals.
• Overreaction to news: Market sentiment can cause stock prices to fluctuate sharply based on short-term developments. The fund aims to use such reactions as opportunities to invest in fundamentally strong companies at attractive valuations.

Conclusion

The Bajaj Finserv Multi Cap Fund combines the principles of contrarian investing with multi cap diversification, offering investors a unique approach to navigating market trends. By identifying undervalued stocks and maintaining a disciplined, research-backed investment strategy, the fund seeks to create long-term growth potential.

Frequently Asked Questions (FAQs)

What is the investment strategy of the Bajaj Finserv Multi Cap Fund?

The fund follows a contrarian investment strategy, identifying undervalued stocks that are currently overlooked due to market sentiment. It aims to invest in companies with strong fundamentals and long-term growth potential.

Who should consider investing in this fund?

This fund may be suitable for investors who have a long-term investment horizon, are comfortable with market fluctuations, and prefer a diversified portfolio with exposure to multiple market caps.

How does the fund decide which stocks to invest in?

The fund managers use fundamental and technical analysis to identify stocks that are undervalued due to temporary market overreactions. They assess factors such as business cycles, industry trends, management quality, and financial performance.

What makes contrarian investing different from other investment strategies?

Contrarian investing focuses on going against the prevailing market trends. Instead of following popular stocks, it seeks opportunities in undervalued stocks that may offer long-term potential once the market corrects itself.

How long should investors stay invested in this fund?

Since contrarian investing requires time for the market to recognize the intrinsic value of stocks, investors are recommended to have a long-term investment horizon of five or more years.

Mutual Fund investments are subject to market risks, read all scheme-related documents carefully.
This document should not be treated as endorsement of the views/opinions or as investment advice. This document should not be construed as a research report or a recommendation to buy or sell any security. This document is for information purpose only and should not be construed as a promise on minimum returns or safeguard of capital. This document alone is not sufficient and should not be used for the development or implementation of an investment strategy. The recipient should note and understand that the information provided above may not contain all the material aspects relevant for making an investment decision. Investors are advised to consult their own investment advisor before making any investment decision in light of their risk appetite, investment goals and horizon. This information is subject to change without any prior notice.