Mutual Funds

Escorts Growth Fund: Big bet on small caps

Anand Kalyanaraman | Updated on January 17, 2018


Escorts Growth Fund has rallied on the back of a few concentrated picks

Its assets under management are very small — less than ₹7 crore. But Escorts Growth Plan was among the top-performing funds last year with 5 per cent plus return. This is much better than its benchmark Nifty 50’s fall of more than 3 per cent and also superior to the performance of most funds across categories. What explains this?

Contrary to what its benchmark suggests, Escorts Growth Plan is not a large-cap fund; it is more a multi-cap fund. Nearly half the portfolio is in mid- and small-cap stocks that helped peg up the fund’s returns last year. Over the last year, the fund has increased its exposure to such stocks (market cap of less than ₹10,000 crore) from about 46 per cent to nearly 48 per cent of the corpus. Besides, the exposure to the preference shares of Zee Entertainment Enterprises has increased from about 5.7 per cent to more than 8 per cent of the corpus.

Large-caps have also risen from about 32 per cent of the portfolio to more than 40 per cent. Ergo: cash balance, which was a high 9 per cent of the corpus in May 2015, has come down to less than 4 per cent. Also, the fund did away with its holdings in government securities (nearly 8 per cent of the corpus a year ago). Upping bets in stocks paid off for the fund.

High stakes

Conspicuous is the fund’s high exposure to SQS India BFSI, a small-cap with market capitalisation of about ₹1,000 crore; the company provides financial software testing services. Nearly 10.5 per cent of Escort Growth Plan’s corpus is in this stock, up from about 8.1 per cent a year ago, making it the largest holding in the portfolio. This stock’s sharp rally (nearly doubling) last year is a key factor in the fund’s good show. What has also helped is the stake buy in the Uniply stock that has gained manifold. The fund has also increased stake in Relaxo Footwears from less than 0.5 per cent of the corpus a year back to more than 4.5 per cent; the stock is up 5 per cent over the last year and has rallied sharply after the dip in March this year.

Getting out of stocks such as Mastek, which tanked sharply, also helped the fund.

Escorts Growth Plan invests across sectors, defensive and cyclical, as allowed by its mandate. Software companies form the largest chunk, followed by private banks.

Over the past year, the fund has increased stake in large software companies (such as Infosys) while paring it in the smaller ones (such as Persistent Systems). It has also made use of the weak sentiment in the banking sector to increase holdings in private banks. The fund has kept away from public sector banks for more than three years now.

Published on July 03, 2016

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