Mutual Funds

With Indian equities in a slump, an investing style built around buying what others are selling is drawing attention.

Contra funds, which buy stocks and sectors that have lagged the market, have held up better than the benchmark through the sell-off. Over the past year, the category lost 6.62 percent on average, against an 11.24 percent fall in the Nifty 50 and a 6 per cent fall in the Nifty 500.

Over three years, contra funds have delivered 10.33 percent a year on average, well ahead of the Nifty 50’s 4.18 percent and the Nifty 500 TRI’s 8.73 percent.

The category is also getting crowded. SBI Contra Fund is the largest at Rs 45,068 crore, followed by Invesco India Contra Fund at Rs 20,644 crore. Bandhan and Motilal Oswal have recently launched contra funds, and the ICICI Prudential Contra Fund NFO is open until October 12, 2026.

What contrarian investing really means

In the month of September all four benchmark indices saw a steep decline. The Nifty 50 fell 6.06 percent and the broader Nifty 500 lost 5.88 percent. Midcaps took the hardest hit, with the Nifty Midcap 150 down 7.09 percent. Smallcaps held up best with the Nifty Smallcap 250 down by 3.12 percent, less than half the drop in the Nifty 50. From October 1, the Nifty 50 is up by just 0.44 percen

"There is a significant differentiation in valuations and investor sentiment," said Sankaran Naren, ED and CIO, ICICI Prudential AMC. "The idea is to focus on stocks that have underperformed the market over the last three to five years, occasionally over one year, and research that addressable universe to identify investment ideas."

Contra funds can invest across large, mid and small caps. Naren currently sees more opportunity lower down the market-cap ladder. "We see contra opportunities in the mid and smallcap space, as there are many sectors where the underperformance has been pronounced. But the key principle is that we will only buy underperformers," he said.

A common misconception is that contrarian means cheap. Naren says the label shifts with the market cycle. "Contrarian investing can include value, growth or quality stocks at different points in time. Quality underperformed over the last six years and has therefore become contrarian. But in 2020, quality would not have been bought in a contrarian fund."

Patience is the price of admission

The strategy’s biggest demand is time. A stock that has lagged for years can keep lagging before the market recognises a turnaround.

"Investors should be mindful that contrarian investing requires patience, because the market may take time to recognise a change in fundamentals or sentiment," Naren said.

Should you invest?

Have a horizon of at least five years. Contra bets can take years to play out, and returns can trail the market in the meantime.

Use it as a satellite, not the core. A flexi-cap or index fund can anchor the portfolio, with a contra fund adding diversification.

Check for overlap. If you already own a value fund, the two portfolios may hold many of the same stocks.

In a market where sentiment has turned sharply negative, contrarian funds offer a structured way to buy what others are avoiding, but only for investors willing to wait.

Disclaimer: The views and investment tips expressed by experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.

 

Oct 12 2026, 08:11