Interview with R Srinivasan, the man behind the SBI Small Cap Fund | Value Research R Srinivasan, known for his stellar work with SBI Small Cap Fund, gives his take on international investing and some of his stock holdings
Interview

The man behind the high-flying SBI Small Cap Fund

R Srinivasan, known for his stellar work with SBI Small Cap Fund, gives his take on international investing and some of his stock holdings

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R Srinivasan, CIO - Equity at SBI Mutual Fund and the architect of SBI Small Cap Fund's dream run - is an interviewer's dream. Unlike many folks in the industry, he is comfortable tackling the most unpleasant questions.

He is also one of the few fund managers in the industry who has made his name by using the bottom-up approach to choosing stocks (a style of stock selection that focuses more on the company stock and less on market cycles).

"I am not much of a macro expert," he tells us matter-of-factly. This streak of honesty carries through the rest of the conversation as he talks about his stock holdings, market valuations and the small-cap universe.

Here is an excerpt from the interview.

Why did you sell your position in a global streaming company in SBI Focused Equity Fund? You still have the stock in the SBI Magnum Children's Benefit Fund-Investment Plan, where in fact, it has now become the top holding? What were the reasons for your exit, especially since the stock hasn't recovered much since its fall earlier this year?

I still like the stock though I'm not sure if it will recover its lost gains soon. For one, incremental change has been negative; two, the whole derating in technology has been extremely sharp. (Derating is when investors are unwilling to buy stocks at the current market price).

In hindsight, it was clearly a bad call at that price. When the stock fell, we did average our position, but eventually, our overall limit ran out due to the ceiling set by SEBI on global holdings early this year. (The SEBI has restricted overseas investment of mutual funds to $7 billion).

Why did we sell? Now, this limit is based on the cost price. Since the stock price tumbled this year, we decided to create headroom by selling the stock and buying it back. Unfortunately, our timing couldn't have been worse. In the gap between the sale and our planned buy, the stock shot up on the back of a sharp market rally.

The Children's Benefit Fund is small-sized, and we had enough room to buy the stock when it fell. This position is running a profit, so there was no question of making a sale and buying back here.

SBI Small Cap Fund is now the second biggest in the category, despite limits on SIP instalments and suspension on lump sum investing. Though the fund continues to do well, do liquidity concerns or the potential shrinking of the investable universe worry you?
Liquidity has been a concern for a while now, which is why we stopped taking money in the fund long back. However, due to past performance (something like 10x in 9 years), the number of SIPs has gone up significantly.

I think we have more than 2 million SIPs in this fund, which is crazy. It's also a lot of happy investors.

I must reiterate that this past performance is not replicable, and size was a key contribution factor.

At the current size, the illiquidity has increased and so have the number of stocks.

A lot of your funds have foreign stocks in the portfolio. What is your key rationale or strategy for going international? And, are you aware of any updates regarding any increase in the industry's foreign investment limits?
There are three reasons why we went global. First is the illiquidity in the Indian market. Second is... To read the full conversation, subscribe to Value Research Premium.


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