The last one year has been an interesting phase for the Indian equity market. Large-cap stocks, generally seen as more immune to market fluctuations, hence less vulnerable, have fallen more than their mid and small-cap counterparts. Sample this; the S&P BSE Sensex Index has been flat in the past year, whereas the S&P BSE Midcap and S&P BSE Smallcap indices have bucked the trend, gaining 9 per cent and 2 per cent, respectively, during this period.

Mutual fund schemes that bet on small-cap stocks have delivered tidy gains, outperforming even the benchmark BSE Small Cap Index by a wide margin, thanks to their deft stock selection.

So, which small-cap focussed funds gained the most and what bets paid off? We looked at funds that invest over 50 per cent of their total assets in small-cap stocks. Of the seven funds that meet the criterion, DSP BlackRock Micro-Cap Fund emerged a clear winner. The fund has managed to consistently top the list across one, three and five-year timeframes.

Limiting exposure to sectors that are vulnerable to the weakness in the domestic and global economies, such as banking and financial services, helped the fund’s performance. Likewise, reducing exposure to pharma and healthcare stocks, which took a beating due to regulatory tightening, also aided performance.

The scheme’s stock picks, such as KPR Mills, Capital First, Navin Flourine, 8K Miles Software and APL Apollo Tubes boosted the scheme’s performance.

L&T Emerging Businesses Fund is another top performer, though with a limited track record (launched in May 2014). It has managed to deliver a strong 27 per cent annual gain since inception. The fund is betting big on cyclical themes, such as engineering, chemicals and construction. At the same time, it is underweight on the so-called defensive themes, such as healthcare and IT.

Also, stocks, such as Supreme Industries, Somany Ceramics and TVS Srichakra, helped lift returns.

While DSP BlackRock Micro-Cap Fund and L&T Emerging Businesses are clearly among the top performers, others such as Sundaram S.M.I.L.E and Edelweiss Emerging Leaders have managed to outperform their respective benchmarks.

But the performance of these funds has moderated over the past year. For instance, in the case of Sundaram S.M.I.L.E, a sharp fall in the price of stocks in construction, infrastructure, engineering, banking and power, such as Gammon Infrastructure, Ashoka Buildcon, TD Power, DCB, Hindustan Dorr-Oliver, ISGEC Heavy Engineering and Adlabs impacted the fund’s performance. However, over a three, and five-year horizon, Sundaram’s S.M.I.L.E has managed to deliver healthy gains.

Related Topics
comment COMMENT NOW