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Suresh Parthasarathy

Investment can be considered in Tata Equity PE if you are a disciplined investor. The fund has outpaced its index BSE Sensex during the bull phase of the market and has a propensity to trail the benchmark during market corrections. Over a three-year period, the fund has generated a compounded annualised return of 20 per cent, a good nine percentage points higher than its benchmark. Tata Equity PE has done well to bounce back from its under-performance during the 2006 market correction.

The fund has a mandate to invest at least 70 per cent of assets in stocks that are available at a price to earnings ratio of less than its benchmark BSE Sensex and hold the rest of the assets in other stocks. Having set the benchmark for P/E the fund finds it difficult to identify stocks in the Sensex basket since a number of large-cap stocks are currently trading in P/E multiples higher than the Sensex PE of 22. Hence the fund predominantly picks stocks outside its benchmark; its portfolio is, therefore, towards mid-and small-cap stocks. This increases the risk profile of the fund, hence warranting an active booking profit strategy at predetermined levels. However, investors can take comfort from the fact that the majority of mid-cap stocks in the portfolio have PE less than that of the Sensex.

To simplify profit-booking, the fund recently launched a “trigger option” under the existing dividend option of the scheme. Under this option, investors can fix the time of declaration of dividend when there is an appreciation in NAV by 5 per cent and 10 per cent in a calendar quarter. As the growth option would not have such a trigger, investors may have to evolve their own strategy.

Performance: The fund’s NAV has grown by 80 per cent over a one-year period, higher than its benchmark by 12 percentage points. To mitigate the risk of mid- and small-cap stocks the fund is underweight in volatile sectors such as capital goods and construction. This suggests that the fund is making an attempt to balance its risk-return profile.

Portfolio overview: The fund has a well-diversified portfolio consisting of 40 stocks and 21 sectors. It took a concentrated exposure to a few sectors over the past year; banks and software were the most preferred sectors.

The sector call worked well in the last one year. The fund has also moved its assets from banking to software in the past three months. Exposure to mid-cap stocks such as Eclerx Services and Mphasis turned out to be well-timed calls. Currently IT sector accounts for 24 per cent of the assets.

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