To tap market sell-off, DSP MF reopens small-cap scheme after 3 years

Our Bureau Mumbai | Updated on March 30, 2020 Published on March 30, 2020

Not fortune tellers, can’t predict market bottom, but adding exposure at current valuations, says fund house

After a break of nearly three years, DSP Mutual Fund (MF) is accepting investor money in its small-cap scheme.

In 2017, citing steep valuations, the fund house had stopped accepting money in the DSP Small-cap Fund, which had managed assets of roughly ₹5,045 crore.

It had restricted flows into the fund in October 2014 to ₹2 lakh per investor as it felt that further large inflows may prove detrimental to the interest of the existing unit holders. In August 2016, it reduced inflows further in the scheme to ₹1 lakh per investor and completely stopped fresh inflows in February 2017. In September 2018, DSP opened the scheme for subscriptions only through SIP/STP .

Now, DSP MF will start accepting investment through lump-sum and SIPs for its small-cap fund from April 1.

“The market has moved a full circle from extreme optimism to the current extremely pessimistic scenario,” the fund house said on Sunday. “However, the history of financial markets shows that they do rebound.”

Benchmark indices Nifty and Sensex have fallen more than 30 per cent from their peak levels this year. The Bank Nifty index gave away 50 per cent from the top but small and mid-cap indices have crashed by more than 60 per cent. On an individual level, the fall is more steep for many stocks. Over the weekend, this forced brokerage house IndiaNivesh to close down its small-cap scheme.

“Smart investors know that buying low, selling high and following the fundamental principles of investing, including what famed investor Warren Buffet once said — ‘Be greedy when others are fearful’ — are difficult steps to keep in mind. Price lows generally occur in deeply troubling times and this is when most investors tend to struggle with the will to invest rationally. The current unprecedented sell-off in the market has improved valuations; once there is any evidence of a way to combat Covid-19, stock prices will start building optimism,” DSP said in a note to clients on Sunday.

Looking beyond

DSP says that it is important to look beyond the ‘right now’ and start investing in good companies that have the ability to survive this downturn while providing long-term wealth creation opportunities.

“We are not fortune tellers and cannot predict whether we have hit a sustainable market bottom or if more pain and volatility will ensue. However, our near-term plan remains the same. We are tactically adding more exposure at current valuations and encouraging our investors to follow suit, liquidity permitting. The DSP Small Cap Fund is in a good position today to start capitalising on such opportunities,” the note added.

Much of the fall in small- and mid-cap stocks in the past two years also came from a SEBI directive, which placed investment restrictions on MFs in such stocks.

Leading PSU fund house SBI MF, too, had closed its SBI Small Cap Fund for new investors in 2017. SBI MF will also open the scheme now, sources told BusinessLine. In 2017, it had managed assets worth around ₹3,476 crore.

Timing is of the essence

Kalpen Parekh, President, DSP Investment Managers, said the small cap index has been very volatile and not made any returns for 13 years now. However, in cycles, intermittently, good small businesses have delivered better results.

Hence, timing becomes very important. The fund house would like to take money when it finds the interest in the category to be very low, reflecting in cheaper valuations, yet keeping focus on quality of businesses, he said.

Vinit Sambre, Head (Equities), DSP Investment Managers, said over the last two years, the S&P BSE Small Cap TRI has fallen cumulatively by 56 per cent. The fall in stock price gives an opportunity to invest in great businesses at attractive valuations, thereby making the risk/reward proposition favourable at current valuations, he said.

Published on March 30, 2020

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