Mutual Funds

Tata Equity PE: Buy

Parvatha Vardhini C | Updated on March 16, 2014


This fund is a permanent value investor, always seeking stocks cheaper than the index

In the past one year, Tata Equity PE managed only about 10 per cent returns while its benchmark, the Sensex, moved up about 13 per cent. But this short-term underperformance may not be a good reason to exit the fund. This is because the bellwether’s valuation, rather than the index itself, is the benchmark for the fund.

Tata Equity PE seeks to invest at least 70 per cent of its portfolio in shares whose trailing PE (price to earnings) multiple is less than the Sensex. This implies that the fund will have a mix of mid- and small-caps as well. This gives the fund a multi-cap profile.

At a time when the Sensex is touching new peaks, led by a rally in a narrow set of stocks, funds such as these could help zoom in on stocks with lower valuations but with a strong potential for growth. Given its valuation bias, investors with a time horizon of at least five years can take exposure to Tata Equity PE.

Good long-term record

With large-cap stocks leading the rally in the past one year, the fund has been an underperformer, looking for stocks with lower valuations outside the Sensex/Nifty or even the top 100 basket.

However, over five years, the fund has given reasonably good returns of 23.5 per cent, beating the Sensex by 2-3 percentage points. These returns are in line with Franklin Prima Plus and only about 1-2 percentage points below ICICI Pru Dynamic and Franklin Flexi Cap, all multi-cap peers. It also outperforms its benchmark in broader rallies such as those in 2009 and 2012.


The fund’s current holdings reflect its value leanings. Mid-caps constitute 40 per cent now. It holds only about 5 per cent each in defensive sectors such as pharma and consumer non-durables.

In-form software is the top holding, through reasonably valued smaller companies, for instance, Hexaware, Mphasis and Mindtree.

A bet on the revival of the cyclical auto industry is being played through low PE stocks such as Tata Motors and ancillaries such as Amara Raja Batteries and Balkrishna Industries.

In the past six months, stocks from beaten-down spaces such as capital goods, cement and construction have also been added. VA Tech Wabag, Jyothi Structures, Ramco Cements and Simplex Infra have formed part of the portfolio since then.

Published on March 16, 2014

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