DSP BR Micro-cap. Book profits, but continue SIPs

An edgy market is hitting small-cap stocks harder than the rest. Understandably so; this set had raced ahead of the others until recently when the bulls were in charge. We had recommended buying DSP BR Micro-cap fund last August, for those with a high risk appetite. Investors would be sitting on gains of about 35 per cent from that time.

It seems prudent to book profits now while continuing to invest systematically in the fund.

DSP BR Micro-cap, among the few funds with a small-cap focus, has earned its stripes. It beats its benchmark S&P BSE Small-Cap index by a mile — outperformance has been 40 percentage points last year, and between 17 and 18 percentage points annualised over three- and five-year periods. The fund’s daily rolling returns have been better than the benchmark’s more than 96 per cent of the time in the past five years. It zooms ahead during market upsides and also contains downsides better than the benchmark when the tide turns. The fund figures in the top quartiles among peers.

That said, the preponderance of small-cap stocks (market capitalisation of less than ₹5,000 crore) in its portfolio (about 75 per cent currently) means that during market downsides, the fund takes a harder knock than peers that have a larger share of mid-cap stocks. Predictions of a weak monsoon have added to worries of poor corporate earnings and the market mood seems to be souring. Investors, while continuing to hold on to the fund, can sell some units to reduce risk and realise profits. At the same time, it makes sense to keep investing in the fund through the SIP route to benefit from cost averaging during market dips. Many small-cap stocks get decimated during market downturns and never recover. But DSP BR Micro-cap has a track record of bouncing back strongly from lows — a reflection of its prowess in stock picking among risky small-cap bets. Also, the large number of stocks in its portfolio reduces risk.

Over the past five years, the fund has benefited from multi-baggers such as Symphony, Atul, Somany Ceramics and Indoco Remedies.

DSP BR Micro-cap also plays it safe when the market turns choppy by increasing exposure to cash. It currently holds 91 per cent of its portfolio in equities, down from 96 per cent in March.

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