The Hindu Business Line : SBI Magnum Contra: Buy

INVESTORS may contemplate exposures in SBI Magnum Contra Fund, which continues to be an impressive performer. It remains at the top of the list of our preferences in the equity fund space. Exposures could, however, be phased out over six to twelve months using a systematic investment plan, as this would enable investors to take advantage of any weakness in the broad market.

SBI Magnum Contra has been the prime beneficiary of the several bouts of re-rating in mid-cap stocks over the past three years. It has benefited from the manifold rise in the price of stocks such as Crompton Greaves, IVRCL Infrastructure, KEC International, Arvind Mills, Praj Industries, Sintex and Jaiprakash Associates, to name a few.

The fund was an early entrant into these stocks and this is reflected in its performance. It has now changed tack. Most of these stocks are still part of the portfolio but large-cap stocks now dominate its top ten holdings. This is the first time the fund has significant exposures to this segment. About 50 per cent of assets are now invested in large-cap stocks.

This is a significant shift in strategy and seems driven by the sharp surge in mid-cap stocks. It also appears designed to place the portfolio in a position to weather any declines in the broad market, contain the downside risk to the NAV and also out-perform the market in such an eventuality.

The stock selection in this space inspires confidence. Exposures to Mahindra & Mahindra, BHEL, ACC, Gujarat Ambuja Cement, Infosys, Bajaj Auto and Cipla point to a high degree of selectivity in picking stocks.

Even in the short period that these stocks have become core holdings, the fund has benefited from better valuation levels.

The fund, which had exposures to a few frontline bank stocks in March this year, has shifted out of the banking sector at the right time.

Zee Telefilms is the top holding; though we are not as sanguine about this exposure as the rest of the large-cap holdings, the fund must have benefited, as the Zee stock has risen over the past month.

The quality of stock selection in the large-cap space is reflected in its performance this year; the fund has been one of the superior performers in each of first two quarters.

The asset base is still small, at about Rs 350 crore, and this affords a high degree of flexibility in management of the portfolio. This could also enable the fund to sustain its impressive streak.

Fund facts: SBI Magnum Contra was launched in June 1999. The minimum investment amount is Rs 2,000.

The entry load is 2.25 per cent. There is no exit load. Mr Sandip Sabharwal is the manager of the fund.

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