What actually happened to Motilal Oswal Midcap Fund? : Understanding a Period of Underperformance
- Samuel Zachariah
- Mar 25
- 6 min read
Motilal Oswal Midcap Fund has had a name for itself in the midcap category for several years, building a solid track record. We can see that in the past five years, where it has delivered a 21.22% CAGR - a genuinely strong result in the midcap segment.
However, the period between November 2025 and March 2026 has been a difficult one for the fund. NAV declined approximately 14% in three months, and the asset under management (AUM) fell by over ₹4,300 crore, and the short and medium term returns are lagging behind its competitors.
Source: Value Research
Let’s dive into why this has occurred:
Here is an overview of the returns of the fund compared to its competitors:
Period | Motilal Oswal | HDFC Mid Cap | Kotak Midcap | Nippon India | Edelweiss |
YTD | -14.23% | -5.38% | -4.45% | -2.69% | -5.65% |
1 Month | -10.91% | -6.40% | -5.85% | -6.01% | -6.18% |
3 Months | -14.40% | -4.05% | -3.15% | -1.37% | -3.94% |
6 Months | -19.00% | -1.31% | -4.42% | -1.13% | -2.22% |
1 Year | -4.39% | +17.28% | +17.79% | +19.01% | +18.09% |
3 Years | 19.97% | 24.49% | 21.02% | 25.52% | 25.66% |
If we look at the 1-year performance, the fund performed negatively at about -4.4%, which is adversely low compared to its peers, who have performed in the range of 16%-19%, and it is well beyond what would normally be attributed to style differences or short-term variance. It is also worth noting that the 3-year performance was at around 20%, which is a reasonable level for a midcap fund, which shows that the deterioration has happened recently in the past 6–9 months.
NAV and AUM Trends : November 2025 to February 2026
Month | NAV (Regular) | AUM | 1Y Return vs Benchmark | Info Ratio |
Nov 2025 | ₹103.45 | ₹38,002 cr | -4.60% vs +7.76% | +0.21 |
Dec 2025 | ₹98.89 | ₹36,880 cr | -12.13% vs +5.98% | +0.10 |
Jan 2026 | ₹92.02 | ₹34,432 cr | -4.29% vs +8.93% | -0.10 |
Feb 2026 | ₹89.03 | ₹33,689 cr | +0.41% vs +23.94% | -0.36 |
The Information Ratio is particularly worth tracking here. It measures how much return the fund generates per unit of active risk - a positive number indicates the manager is adding value over the benchmark, while a negative number suggests the opposite. The shift from +0.21 in November to -0.36 in February, over just three months, reflects a significant deterioration in the fund's ability to outperform on a risk-adjusted basis.
The Fund Manager Transition
Another factor upon notice was the change in the management of the fund is the change of fund managers, Mr. Niket Shah was the fund manager since July 2020 and the fund has been perfoming great under his supervision and on January 2026 it can be seen that he has been replaced by 2 fund managers Mr. Ankit Agarwal and Mr Varun Sharma.
December 2025 | January 2026 |
Mr. Niket Shah (Fund Manager since July 2020) | Mr. Niket Shah - Departed |
Mr. Ajay Khandelwal (since October 2024) | Mr. Ajay Khandelwal (retained) |
Mr. Ankit Agarwal - Joined 21 Jan 2026 | |
Mr. Varun Sharma - Joined 21 Jan 2026 |
It is worth being clear about what this means: the historical track record of the fund reflects decisions made under different management. That does not make the fund a poor choice going forward, but it does mean investors should evaluate it on the basis of the current team and their approach, rather than relying solely on past numbers.
The practical consequences of the transition included a confidence-driven redemption increase, portfolio reshuffling by the incoming managers, and an adjustment period during which continuity of strategy was limited.
The new fund managers Mr Ankit Agarwal and Mr Varun Sharma have been managing other Motilal Oswal mutual funds such as Motilal Oswal Flexi Cap Fund, Motilal Oswal Focused Fund, Motilal Oswal Business Cycle Fund etc.
Stock-Level Performance: Where the NAV Decline Came From
The fund follows a concentrated approach, holding around 26 stocks. This means individual holdings can significantly influence overall performance.
As of 31st January 2026, the top 10 holdings showed the following trends:
Stock | Weight (Jan) | % Change from 1st Decmeber – 10th march | Est. NAV Impact |
Persistent Systems Ltd. | 9.8% | -26.59% | ~-2.61% |
Coforge Ltd. | 9.6% | -41.70% | ~-4.00% |
One97 Communications (Paytm) | 7.7% | -24.43% | ~-1.88% |
Eternal Ltd. | 6.9% | -24.09% | ~-1.66% |
Kalyan Jewellers India Ltd. | 6.4% | -20.62% | ~-1.32% |
Bharti Airtel Ltd. | 5.4% | -14.54% | ~-0.79% |
Aditya Birla Capital Ltd. | 5.1% | -10.33% | ~-0.53% |
KEI Industries Ltd. | 4.8% | +3.72% | ~+0.18% |
Dixon Technologies (India) Ltd. | 4.5% | -21.76% | ~-0.98% |
Bharti Hexacom Ltd. | 3.4% | -13.45% | ~-0.46% |
Nine of the top ten holdings declined over this period, with only KEI Industries delivering a positive return. The estimated NAV drag from these ten stocks alone accounts for approximately 14 -15% of NAV - closely matching the actual decline from ₹103 to ₹89 over the same period.
IT-Software Impact
The IT Sector Correction - Context Behind the Numbers
To understand why the fund's top holdings fell so sharply, it is worth stepping back and looking at what was happening across the Indian IT sector more broadly during this period. The fund's exposure to IT software stood at nearly 20% of the portfolio - the single largest sector allocation - and that concentration meant the fund was particularly sensitive to any headwinds the sector faced.
The Nifty IT index declined by more than 20% from its recent peak between mid-2025 and early 2026, entering what analysts describe as correction territory. The sell-off was broad-based, affecting large caps and midcaps alike, but mid-tier companies with higher US revenue exposure - exactly the profile of Persistent Systems and Coforge which saw steeper falls.
The AI Disruption Question
There was a structural concern that proved harder to quantify: the potential impact of artificial intelligence on traditional IT services. Investor sentiment weakened due to growing concerns that rapid AI adoption - particularly in areas like coding assistance, automated testing, and support operations - could reduce demand for the kind of manual, labour-intensive work that has historically been the backbone of Indian IT outsourcing.
What This Meant for the Fund
The fund's IT allocation of ~20% was a deliberate, high-conviction bet. When the sector corrected 20%+ at the index level, and midcap IT names like Coforge and Persistent fell further still, the impact on NAV was direct and significant - compounding the difficulties caused by the management transition happening at the same time.
The IT correction was a sector-wide event, not a stock-picking failure unique to this fund. What made it more damaging here was the concentration of exposure and the timing - the correction deepened precisely during the period when the fund was also navigating a change in management and rising redemption pressure.
Coforge, at a 9.6% portfolio weight, was the largest individual contributor to the decline at -41.7%. The top three positions - Persistent Systems, Coforge, and Paytm - collectively represented 27.1% of the fund, and each fell between 24% and 42% during this window. In a concentrated portfolio, this degree of simultaneous pressure on the largest holdings is significant.
Portfolio Reshuffling by the New Management
Following the management change, sector allocations shifted considerably across the four months tracked.
Sector | Nov 2025 | Dec 2025 | Jan 2026 | Feb 2026 | |
IT-Software | 19.9% | 19.1% | 19.5% | 12.3% | ↓ |
Consumer Durables | 16.1% | 14.8% | 11.0% | 11.8% | ↓ |
Finance | 7.4% | 7.9% | 9.6% | 12.1% | ↑ |
Capital Markets | ~0% | 2.2% | 5.6% | 10.4% | ↑↑ |
Industrials | 9.3% | 8.4% | 4.8% | 6.3% | ↓ |
The scale of this repositioning is reflected in the fund's Portfolio Turnover Ratio of 1.03, indicating that the equivalent of the entire portfolio was turned over within the year, a level significantly higher than what a stable, low-churn strategy would typically see, and one that carries implicit transaction costs for the fund.
The new managers have reduced IT exposure from 19.9% to 12.3% and built up Capital Markets from near zero to 10.4% - a meaningful repositioning in a short period. Finance has also increased to 12.1%.
Rapid reallocation in a concentrated fund does come with practical costs such as exits from existing positions, realising losses, new additions involving transaction costs, and the portfolio going through a period of transition during which neither the old strategy nor the new one is fully in place.
Redemption Outflows and Their Effect
AUM fell by ₹4,313 crore between November 2025 and February 2026, reflecting investor redemptions alongside market-driven NAV decline.
Month | AUM | Monthly Change |
Nov 2025 | ₹38,002 cr | - |
Dec 2025 | ₹36,880 cr | -₹1,122 cr |
Jan 2026 | ₹34,432 cr | -₹2,448 cr |
Feb 2026 | ₹33,689 cr | -₹743 cr |
January saw the largest single-month outflow at ₹2,448 crore, coinciding directly with the fund manager's departure. February's figure of ₹743 crore, while still negative, suggests outflow pressure may be moderating.
Winding Up
The underperformance over this period reflects three factors working in combination: a sector allocation that was poorly positioned for the market environment from mid-2025 onwards, a fund manager transition that created uncertainty and triggered outflows, and a period of portfolio adjustment by new managers during a difficult market backdrop. Each of these has compounded the others to some degree.
Motilal Oswal Midcap Fund remains a sizeable, established fund with a reasonable long-term record. The recent period has been a difficult one, driven by a combination of sector headwinds, a management change, and the practical pressures that come with investor outflows in a concentrated portfolio.
Disclaimer: This article is for informational purposes only and does not constitute investment advice or a recommendation. Mutual fund investments are subject to market risks, and past performance does not guarantee future results. Readers should consult a qualified financial advisor before making any investment decisions.
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