DSP Midcap Fund
- 1. DSP Midcap Fund An open ended equity scheme predominantly investing in midcap stocks October 31, 2018 *Investors should consult their financial advisors if in doubt about whether the Scheme is suitable for them. This open ended equity scheme is suitable for investors who are seeking* : Long-term capital growth Investment in equity and equity-related securities predominantly of midcap companies
- 2. Market capitalization spectrum 2 Market Cap break-up are defined by SEBI based on the list of stocks prepared by AMFI updated every 6 months based in the data available as on June & December of each year. Market cap ranks in the pyramid are as on market cap list shared by AMFI as on June 29, 2018 The sector(s)/stock(s)/issuer(s) mentioned in this presentation do not constitute any research report/recommendation of the same and the Fund may or may not have any future position in these sector(s)/stock(s)/issuer(s). Top 100 companies Top 101-250 companies 1st – Tata Consultancy Services (Rs. 609,949 Cr) 251st company onwards 100th – Colgate Palmolive (India) (Rs. 30,609 Cr) 101st – United Breweries (Rs. 29,338 Cr) 250th – EIH Ltd (Rs. 9,984 Cr) 251st – Solar Industries India (Rs. 9,850 Cr) LARGE MID SMALL
- 3. Mid Cap space – Value proposition Best way to access market inefficiencies Large pool of varied, uncorrelated stocks Niche plays reduce correlation amongst stocks & with broader markets Large number of under-owned & under-researched stocks 3 Under-researched stocksUnder-owned stocks Averageno.ofanalystsperstock Averageinstitutionalownership(%) Source: Ambit Capital, Bloomberg, Capitaline. Note: Universe is the BSE500 Index as on October 31, 2018. Large-caps are defined as top 100 stocks on market capitalization, mid-caps as 101-250 , and the remaining as small-caps . 33 26 23 5 10 15 20 25 30 35 Large Cap Mid Cap Small Cap 32 15 9 0 5 10 15 20 25 30 35 Large Cap Mid Cap Small Cap
- 4. Performance drivers for small/mid cap stocks 4 Quality of Management Size of the opportunity available Holding Period Small and mid cap stocks tend to grow at a faster rate
- 5. Case for active management in small and mid cap space Difference between average stock returns and median stock returns Source: Bloomberg. Note: Universe is top 500 stocks on 6 month average market cap each year (as of Dec for previous calendar years, till 31st October 2018 for 2018). Large-caps are defined as top 100 stocks on market capitalization, mid-caps as 101-250 , small-caps as 251–500. Average stock returns & median stock returns shown herein above are only to explain the investment objective/strategy. The same should not be construed as indicative or intended return that the scheme may generate. As the returns shown are dated, the same may or may not be relevant in future. Average stock return minus Median stock return (for last 13 years) Difference between average and median returns – an indicator of how divergent the outliers are from the median Higher this difference, higher the divergence in returns and higher the potential to generate excess returns Ability to identify these outliers could add significant alpha 5 7% 7% 10% 0% 2% 4% 6% 8% 10% 12% Large-Cap Mid-Cap Small-Cap
- 6. Investment Process Industry Overview Idea Generation Market Capitalization 6 Company Meetings Challenge Assumptions Fundamental Analysis Financial Modeling Team Sector Analysts Screening Conferences Company Meetings References Research Pipeline Internal Stock Ratings Portfolio Construction Buy-and-hold approach Structured, disciplined research process In-Depth Company Analysis
- 7. Source: DSP Investment Managers as of August 2018 Portfolio Managers + Analysts 7 Idea Generation INTERNAL EXTERNAL Together. Everyone. Achieves.More Daily morning calls Weekly all-day teammeeting every Wednesday Internal screens Our Network createsour Networth Interactions with 400+ companies ayear 15+ conferences ayear Industry experts, supply chainchecks Sell-side interactions
- 8. In-depth Company Analysis 8 1. Subset of overall analyst coverage / recommendation 2. Sector weight same as benchmark (CNX 500) 3. Freedom for analyst to allocate within respective sector 4. Objective is to outperform the benchmark Analyst Model Portfolio We maintain an analysts’ top picks model portfolio, which provides them an opportunity to express their highest conviction ideas. We focus on incremental ROE andPrice/Book, in addition to other fundamental parameters Across eachof the 330 stocks undercoverage Overall atafund house level our endeavour is to maintain~70% of our schemeportfolios in Strong Buys andBuys Focus on Companies and Earnings STEP 01 Price Target STEP 02 Stock Recommendation STEP 03 InvestmentComfort ConvictionExpressed Strong buy Buy Hold Sell Strong Sell Investment Philosophy: Growth at a Reasonable Price
- 9. PREDICTABILITY (PRE) QUALITY (MQ) Our proprietary EQ & IQ framework 9 EQ Emotional Quotient (Subjective) IQ Intelligence Quotient (Objective) Stocks under coverageareassigned abinary rating across 7 parameters Source: DSP Investment Managers , as of July 2018. | *Or as many years as available if <10years; Broader market refers to NIFTY 500. The above information is only for illustration purpose and should not be construed as recommendation of the stocks. The sector(s)/stock(s)/issuer(s) mentioned in this presentation do not constitute any research report/recommendation of the same and the Fund may or may not have any future position in these sector(s)/stock(s)/issuer(s). SHORT TERM GROWTH (STG) Analyst view on earnings growth trajectory over the next 2-3 quarters LONG TERM GROWTH (LTG) 10 year market-capCAGRgreater thanbroader market* VALUE (VAL) Analyst view of stock valuation(combinationof relative andabsolute) versus the sector RETURN ON EQUITY (ROE) VOLATILITY (VOL) Analyst view of business /quarterly shocks Analyst view of management quality Some of our indicative recommendations / ratings EQ IQ EQ IQ EQ IQ EQ Either absolute ROE > 15%or animproving ROE trajectory Threshold of stock volatility being lower thanmarket volatility Name STG LTG VAL ROE PRE VOL MQ Bajaj Finance 1 1 0 1 1 0 1 TCS 1 1 0 1 1 1 1 Havells India 1 1 0 1 1 0 1
- 10. Portfolio Construction 10 Disciplined portfolio construction process without compromising each PM’s individualistic style Risk and Quantitative Analysis team Oversight Position Sizing 10% regulatory limit per stock; We try to overweight between 3 to 6% in our high conviction ideas Market-cap Exposure To diversify across market-caps Recommendations ~70% of our scheme portfolios is maintained in Strong Buys and Buys Sector allocation An outcome of bottom up stock selection Macro Views Focus on interest rates, inflation, currency, fiscal and growth Portfolio Review To ensure optimal performance and realignment with our process Portfolio Managers
- 11. Opportunities & Challenges *Macro factors would include, for example, inflation, GDP growth, commodities prices, etc. Stock-specific factors include, for example, the company‘s earnings, product development and market share. 70% 30% 10% 90% 0% 20% 40% 60% 80% 100% Macro Factors* Stock Specific Factors* %ageofperformance Amount of Performance explained by Macro Factors v/s Stock-Specific Factors Large Cap Small Cap Source: Citigroup For small / mid cap stocks, company-specific factors have a much higher impact than macro factors Large number of stocks & wide variety of sectors Under-owned & under-researched companies Founders exert great influence - entrepreneur driven segment Corporate actions (for example, mergers, acquisitions, etc.) affect stock prices 11 Past performance may or may not be sustained in the future and should not be used as a basis for comparison with other investments.
- 12. Possible risks of investing in small and mid cap companies Business model might not scale Liquidity risk Corporate governance Company management dependent on one person (i.e. no depth of personnel) High volatility in returns 12
- 13. 13 Max 0.99 Min 0.53 Average 0.72 Current 0.89 Max 0.81 Min 0.33 Average 0.51 Current 0.67 Source: Ambit Capital, October, 2018. Past performance may or may not be sustained in the future and should not be used as a basis for comparison with other investments. 0.30 0.40 0.50 0.60 0.70 0.80 0.90 1.00 1.10 Jul-05 Jan-06 Jul-06 Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 Jul-15 Jan-16 Jul-16 Jan-17 Jul-17 Jan-18 Jul-18 NSE Mid Cap Index P/B to Nifty P/B 0.20 0.30 0.40 0.50 0.60 0.70 0.80 0.90 Jul-05 Jan-06 Jul-06 Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 Jul-15 Jan-16 Jul-16 Jan-17 Jul-17 Jan-18 Jul-18 BSE Small Cap Index P/B to Nifty P/B Mid/small cap valuations vs. large caps – P/B
- 14. 14 DSP Mid Cap Fund TOP10HOLDINGS TOP10SECTORS Fund Manager (s) Vinit Sambre, Jay Kothari^^, Resham Jain AUM 5,249 crore Nature of the fund Mid Cap Benchmark Nifty Midcap 100 TRI Inception date 14 November 2006 Exit Load <12 months: 1%; >=12 months: NIL Why should you consider this fund? Investment in companies with consistent earnings and significant growth potential Stocks that could potentially benefit from re-rating Places emphasis on quality and avoids inferior businesses A mid cap portfolio driven by a bottom-up stock selection strategy Source: Internal; Data as on Oct, 2018. The sector(s)/stock(s)/issuer(s) mentioned in this note do not constitute any recommendation of the same and the Fund may or may not have any future position in these sector(s)/stock(s)/issuer. ^^Dedicated Fund manager for managing overseas funds. 5.85% 4.09% 3.82% 3.62%3.18% 3.15% 3.06% 2.99% 2.87% 2.82% Exide Industries Limited Sterlite Technologies Limited SRF Limited RBL Bank Limited Supreme Industries Limited Divi's Laboratories Limited City Union Bank Limited Voltas Limited Solar Industries India Limited The Ramco Cements Limited 11.30% 11.28% 11.23% 9.22% 8.54% 6.34% 5.14% 4.74% 4.57% 4.09% Industrial Products Banks Pharmaceuticals Auto Ancillaries Finance Chemicals Consumer Non Durables Textile Products Construction Project Telecom - Equipment & Accessories
- 15. 15 “We don’t have to be smarter than the rest. We have to be more disciplined than the rest.” “Unless you can watch your stock holding decline by 50% without becoming panic-stricken, you should not be in the stock market.”
- 16. Disclaimers 16 In this material DSP Investment Managers Pvt. Ltd. (the AMC) has used information that is publicly available, including information developed in-house. Information gathered and used in this material is believed to be from reliable sources. The AMC however does not warrant the accuracy, reasonableness and / or completeness of any information. The data/statistics are given to explain general market trends in the securities market, it should not be construed as any research report/research recommendation. We have included statements / opinions / recommendations in this document, which contain words, or phrases such as “will”, “expect”, “should”, “believe” and similar expressions or variations of such expressions that are “forward looking statements”. Actual results may differ materially from those suggested by the forward looking statements due to risk or uncertainties associated with our expectations with respect to, but not limited to, exposure to market risks, general economic and political conditions in India and other countries globally, which have an impact on our services and / or investments, the monetary and interest policies of India, inflation, deflation, unanticipated turbulence in interest rates, foreign exchange rates, equity prices or other rates or prices etc. The sector(s)/stock(s)/issuer(s) mentioned in this presentation do not constitute any research report/recommendation of the same and the Fund may or may not have any future position in these sector(s)/stock(s)/issuer(s). The portfolio of the scheme is subject to changes within the provisions of the Scheme Information document of the scheme. Please refer to the SID for investment pattern, strategy and risk factors. Past performance may or may not be sustained in the future and should not be used as a basis for comparison with other investments. All figures and other data given in this document are as on Oct 31, 2018 (unless otherwise specified) and the same may or may not be relevant in future and the same should not be considered as solicitation/ recommendation/guarantee of future investments by DSP Investment Managers Pvt. Ltd. or its affiliates. Investors are advised to consult their own legal, tax and financial advisors to determine possible tax, legal and other financial implication or consequence of subscribing to the units of DSP Mutual Fund. For scheme specific risk factors and more details, please read the Scheme Information Document, Statement of Additional Information and Key Information Memorandum of respective Scheme available on ISC of AMC and also available on www.dspim.com. DSP Midcap Fund (DSPMF), which is benchmarked to the Nifty Midcap 100 TRI, is not sponsored, endorsed, sold or promoted by India Index Services & products Limited (IISL). IISL is not responsible for any errors or omissions or the results obtained from the use of such index and in no event shall IISL have any liability to any party for any damages of whatsoever nature (including lost profits)resulted to such party due to purchase or sale or otherwise of DSPBRMF marked to such index. Neither the DSP Mutual Fund nor any of its schemes are registered in any jurisdiction except in India, under SEBI (Mutual Fund) Regulations, 1996; except for DSP Equity Opportunities Fund and DSP Dynamic Asset Allocation Fund, which are also registered with the Securities and Commodities Authority, UAE. The distribution of this material in certain jurisdictions may be restricted or subject to registration requirements and, accordingly, persons who come into possession of this material in such jurisdictions are required to inform themselves about, and to observe, any such restrictions. The strategy mentioned in the presentation has been currently followed by the Scheme and the same may change in future depending on market conditions and other factors. Mutual Fund investments are subject to market risks, read all scheme related documents carefully.