VR Logo

An Impressive Turnaround

After suffering during the tech collapse, DSPML Equity Fund has been doing well to deliver good returns over the last three years

DSPML Equity's performance in the last three years has been impressive. In fact, its good run has led to an upgradation of its Value Research Star Rating from three to four-star since September 2005. The fund's good performance has also resulted in an almost 200 per cent growth in its assets since December 2004, when it was Rs 83 crore fund to Rs 247 crore in October 2005.

However, till 2002, the fund struggled, as it under-performed an average peer during the testing times of the tech collapse. After being launched in April 1997, the fund met with some early success on the back of booming stock markets. However, that was to fade away in the subsequent collapse of the markets. The second quarter of 2000 was particularly harsh for the fund as it lost much more than the category. Like many other funds, it had to pay the price for the tech heavy portfolio. The next quarter was also bad- this time an increased exposure to FMCGs also contributed to the fund's misery.

For the next one-and-a-half year, the fund struggled to keep pace with the category average returns. However, during the quarter ended June 2002, the nightmares returned. In this quarter, the category was up 2.12 per cent, while the fund had lost 5.28 per cent. While the sectors like auto and consumer durables were racing ahead during this time, sectors including health care, IT and FMCG were the performing badly. Unfortunately, these three were among the fund's top holdings.

But by this time, the worst was probably over for the fund. In the subsequent three years, the fund's performance has been quite impressive. Not only has it delivered good returns, but they have also been backed by consistency- since mid-2002, the fund has under-performed the category average only in two of the last 13 quarters. As on November 17, 2005, its three-yearly trailing return of 68.62 per cent places it in the top quartile. Since the start of 2005, the fund is up 39.75 per cent, as against category's 33.33 per cent. And all this seems to be the result of good fund management, without getting overly aggressive on a few stocks or sectors. Long term buys like Pentaloon Retail, Bharat Forge, Ranbaxy have proved immensely beneficial, while it has also capitalized well on the recent upswings of stocks like Balrampur Chini and Sesa Goa. Currently, the fund is bullish upon sectors like Consumer non-durables, financial services and diversified.

Though the portfolio still has a large-cap bias, but the allocation to mid- and small-cap stocks has gone up significantly. As per the October 2005 portfolio, they accounted for half of its stock holdings. To mitigate the risks of investing in smaller companies, the fund has increased the number of stocks in the portfolio. As On October 31, 2005, it had 73 stocks, which seems to be a bit too high. This is because 40 of these account for less than 1 per cent of the portfolio, and until and unless many of these become multi-baggers, it will not have a significant impact on the returns.

Overall, not only has the fund turned around well, but is continuing with its good run. It deserves a closer look.