BNP Paribas Equity : Growth bias ensures out-performance

Large-cap-oriented funds that have delivered positive returns over the past year have been few — BNP Paribas Equity belongs to this club. While the fund invests mostly in large-caps, it takes reasonable exposure to mid- and small-caps too.While many large-caps slipped in the iffy market last year,several smaller stocks held their ground and did much better. Hence, BNP Paribas Equity has done better than many pure large-cap funds.. The fund usually shifts allocations based on market conditions. In a weak market, for instance, in August 2013, the exposure to relatively safer large-caps went up to almost 80 per cent, while it fell to about 72 per cent during the buoyant market conditions of January 2015.

BNP Paribas Equity has, consistently outperformed the Nifty 50 by 7-9 percentage points over three and five years, and more than nine times out of 10 on a one-year daily rolling return basis since January 2011.Since late 2011, when there was a change in the fund manager, the fund has done better than the benchmark both during market upsides and declines.

What has also helped the fund is good sector and stock choices. For instance, from more than 4 per cent of the portfolio in June 2014 when the commodity rout began, exposure to the metals and mining sector now accounts for less than 2 per cent. Also, while letting go of public sector banking stocks which face challenges in a slow growth environment, the fund has added on to quality private sector banks which hold more promise. Interestingly, the fund also has significant exposure to beaten down telecom stocks Bharti Airtel and Idea Cellular, which are likely to remain among the few players standing in a sector set to see intense competition.

The fund bets on high-growth companies, even if the stocks don’t come cheap. For instance, last year, the fund increased stakes in stocks, such as HDFC Bank and Maruti Suzuki, which commanded premium valuation but still delivered healthy double-digit returns.

The fund also invested in winning initial public offers, such as VRL Logistics and Manpasand Beverages. Over the past three and five years, stocks such as Bharat Electronics, Bajaj Finance and PVR have gained handsomely. The mid- and small-cap holdings of the fund are also quality names, such as Repco Home Finance and VA Tech Wabag. Currently, large-caps (stocks with market capitalisation of ₹10,000 crore and more) make up 78 per cent of the portfolio, with about 17 per cent in mid- and small-caps.

The fund generally remains invested mostly in equity (about 95 per cent or more of the portfolio), occasionally increasing debt and cash holdings when the waters turn turbulent.

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