Prime Fund Recommendation: A contrarian fund that beats the consensus

A contrarian investment strategy aims to generate returns by going against the crowd. It holds on to companies or sectors that are currently out of favour, in the hope of earning rewards when the tide turns. Naturally, you’d expect such a strategy to underperform at times — especially while waiting for the market to come around. But here’s a fund that follows the contrarian approach and still manages to beat the market consistently: Invesco India Contra Fund.

How are contra funds different from value funds?

Contra funds focus on stocks or sectors that are out of favour. Value funds, on the other hand, look for stocks that appear undervalued based on metrics like price-to-earnings or price-to-book ratios. In practice, there’s often a lot of overlap between these two styles. That’s why SEBI allows each fund house to offer only one fund across these two categories.

Sometimes, a high-valuation stock that’s temporarily out of favour might first catch the eye of a contrarian fund manager — and only later qualify as a value pick. If you compare portfolio-level valuation metrics like PE and PB, contra funds typically show higher numbers than value funds. That’s because contra funds aren’t necessarily chasing low valuations.

Fund management and portfolio

Invesco Contra is managed by Taher Badshah, who’s been at the helm for over eight years, and Amit Ganatra, who came on board in late 2023. As of the March 2025 portfolio, 57% of the fund is allocated to large caps, 23% to mid caps, and 15% to small caps.

Its large-cap allocation is in line with peers in the contra/value category, as well as for the entire diversified category (contra, value, flexi-cap, and dividend yield funds put together) at 57% and 59% respectively. However, this fund leans more towards mid caps and less towards small caps compared to its peers. Contra and value funds, on average, have 12% in mid caps and 22% in small caps, while diversified funds have 16% in mid caps and 19% in small caps.

In the past year, the fund increased its exposure to private banks and healthcare, while reducing its holdings in public sector banks and the power sector. Its top four sector allocations are Financials (34%), Healthcare (15%), Technology (14.5%), and Consumer Discretionary (12%). Compared to the Nifty 500, the fund is overweight on Financials and Healthcare, and underweight on Energy. It also maintains a low overlap of just 36.4% with the Nifty 500 as of March 2025.

The portfolio’s PE and PB ratios stand at 26.06 and 3.94, respectively, slightly higher than the Nifty 500’s 24.79 and 3.66. Another sign that this fund isn’t a typical value hunter.

Why buy?

Invesco India Contra Fund has consistently outperformed both its benchmark and category averages. The tables below show how it stacks up in terms of rolling returns.

What makes these returns more impressive is the fact that the fund achieves them while containing risk. It has delivered higher average returns, while keeping the drawdown and standard deviation to lower levels . This is especially noticeable in longer-term three-year rolling returns.

• On one-year rolling returns, the fund has beaten the Nifty 500 TRI 67.11% of the time.
  It has also outperformed comparable diversified funds (Contra, Value, Flexi-cap, and Dividend Yield) 62.28% of the time.
  However, when compared only to the Contra and Value category average, its edge is more moderate — at 52.41%.
  
• On three-year rolling returns, the fund’s outperformance is much stronger:
  
  • Against the Nifty 500 TRI: 93.61% of the time
    
  • Against diversified funds: 80.38% of the time
    
  • Against Contra and Value funds: 71.68%

Performance in Bull and Bear Markets

To assess how resilient the fund is, we also looked at its performance during recent market cycles — across three bear markets and two bull markets.

In bear markets, Invesco India Contra Fund has generally matched or done slightly better than both category and index averages. In the ongoing downtrend that started after the September 2024 peak, the fund has been slightly better at containing downside beating the index and category averages.

The post-COVID rally brought a sharp reversal in value themes, with long-stagnating PSU stocks making a strong comeback. Value funds, which were overweight on these sectors, posted stellar returns and even outperformed the index — a rare feat during sharp, one-way rallies that usually favour passive investing. During this phase, Invesco India Contra Fund slightly underperformed both the index and category averages. However, the margin of underperformance was small.

In contrast, the more moderate rally that began in mid-2022 saw the fund outperform both the index and broader fund categories comfortably. It also delivered returns in line with the Contra and Value fund category averages — noteworthy, considering this phase too saw a strong rally in value stocks, which the fund wasn’t heavily betting on.

Fund Expenses: The fund’s direct plan has an expense ratio of 0.59%, which is reasonable, and less than the category average of 0.88% (average for the categories Contra and Value). Its regular plan has an expense ratio of 1.66%, essentially giving 1.07% extra returns per year for choosing direct over the regular.

Fund Taxation: Belonging to the equity category, this fund is subject to 20% capital gains on short term (less than 1 year) capital gains. The long term (1 year or more) capital gains will be taxed at 12.5% with gains upto Rs.1.25 lakh exempted.

Risks & Suitability

With a portfolio that shows low overlap with the index and most flexi-cap funds, Invesco India Contra Fund brings true diversification to your equity allocation. Despite its distinct style, it has remained a consistent performer across both bull and bear market phases. The fund has earned its place in the Equity – moderate risk section in the Prime Funds.

In investing, you don’t always need to chase the chart-topper every quarter. Sometimes, the fund that consistently stays in the second quartile ends up in the top quartile over the long term. Invesco India Contra Fund is one such candidate.

There’s no need to time your entry into this fund. It’s a good choice for adding style diversification, especially when paired with growth-oriented funds in your portfolio. Being a contrarian equity fund, you should be prepared to stay invested for at least 5–7 years to benefit from its strategy.

General disclosures & disclaimers