Small stocks, big returns

SBI Small & Midcap Fund, which has been suspended for sales due to capacity constraint, is the category topper over one year and three years. We speak to the fund manager, R Srinivasan. Reasons for outperformance of SBI Small & Midcap Fund For one, the whole category has done well; there has been some polarisation across the market in favour of small and mid caps and this trend helped us as well. Two, the fund started with a small corpus which enabled it to go lower down the capitalisation curve where some excellent research-arbitrage opportunities existed. Third and equally important was our willingness, as a house, to spend time and effort on this sparsely covered space in search of excess returns. Specifically, top return attributors over the last one year, in that order, were Relaxo Footwears, Ramkrishna Forgings, Techno Electric, D-Link India and Alembic Pharmaceuticals. Stock-selection criteria We have an in-house five-factor model that we use to pick stocks. It includes competitive advantage, return on capital, growth, management and valuations. You would ideally want all factors to be favourable, but t