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Vinit Sambre of DSP MF on how to find multibaggers without getting burnt

, ET Now|
Updated: Sep 07, 2018, 03.16 PM IST
We are still not allowing lumpsum investment in smallcap fund: Vinit Sambre, DSP MF
We are still not allowing lumpsum investment in smallcap fund: Vinit Sambre, DSP MF


  • Chemical companies have come up well in last few years.
  • The opportunity is still very wide in NBFCs.
  • Domestic branded textile players driven by broader consumption theme.
Vinit Sambre, Head-Equities, DSP MF, shut his smallcap fund 2 years ago and has re-opened it again. This way, he managed to save investors from the interim brutal mid and smallcap sell off. In an exclusive interview with Ajaya Sharma of ET Now, Sambre says they have reopened the fund on SIP and STP basis and are still not allowing the lump sum right now.

Edited excerpts:

The smallcap category had run up quite a bit from 2014 to 2017. Then came a brutal sell-off. But you were quite ahead of the curve, stopping fresh inflows into your fund quite early on and avoided the fall. Now you have opened inflows again. How are you analysing this category of the market?

The category was getting expensive, the number of opportunities were shrinking and the money flow was massive in that category which was also an indication that investors were looking at the historical returns and getting slightly more skewed towards a particular asset which is the smallcap. This was also giving signals of it becoming riskier from the investment viewpoint. So, we shut the inflows into the fund, giving indication to investors that we consider this to be expensive and we felt that the category needs to correct down a bit, so that it becomes more reasonable in terms of valuations for us to again start looking at it.

Beginning 2018, we started seeing that while largecaps and the overall markets have done well and moved up some 10-11%, the smallcaps have come off about 12-15%. Within this fall, some stocks saw much more pressure going down as high as 40-50-60%. What happened in the bargain is that the category lost some bit of that hyper valuation range it was trading at.

It has come down to slightly more reasonable level and this is where we have taken a decision to reopen our smallcap fund, DSP Small Cap Fund and we are reopening it on the SIP and STP basis right now. We are still not allowing the lump sum right now.

Is it fair to estimate that the froth is relatively lower now or cleaned in certain areas and it makes sense to selectively start looking at the space once again?

Surely. the froth is not fully cleaned. I would say it is cleaned somewhat but it is a good starting point for all of us because as an investor one is never able to always identify the lowest price point. Given the macroeconomic headwinds, the volatility may continue for a while and that is the opportunities’ basket for us. We are going to look at this volatility as an opportunity and we are going to take decision of investing into companies which we feel are attractive in terms of the business.

You have seen small and midcaps through the cycles. Lately, we have seen that value investors are interested in working in this area. Big HNIs have gone exceptionally high over the last 12-15 months. What are the areas investors should focus on when working to find potential multibaggers in mid and smallcap space? Quality of management, quality of earnings, the promises which get built into the stories, how much would all these factors weigh?

Top quality management is the most important factor, beyond which comes the business, the outlook for the business and the other valuation parameters.

Within these three frame, there are more detailed due diligence exercise which we carry out but by and large these are the most important pillars investors should focus on. We believe that every company has a value and we try to focus on it to understand what is the value of that business, what is the value of the franchise which the management is building and once we get confidence and conviction about the value of a business or the future value of that business, price variation is an opportunity.

During volatile times, whenever we see price correction taking place, for us the value does not get impacted as much as the price. Hence, we take these corrections as an opportune time. There are phases when the prices move up much beyond their likely valuation in future That is the time we take decision to get rid of or book some profit into those names. That is how we have been looking at that category.

I was just analysing the composition of your fund and I found that there were quite a lot of chemical companies. Lately, we have seen a lot of macroeconomic changes, changes in China, pollution norms and the general commentary from a lot of chemical managements. What is your hypothesis on the speciality chemicals space? You have quite a lot of names in the top 10-15.

These companies in the last few years have actually come up quite well, not only in terms of the product basket they are catering to, but also in terms of specialising in their own ways across each company. Also, we sense that a big opportunity is brewing up and it has to do with China going out of the market because of their pollution-related requirements. That is in a way leading to a lot enquiries coming on to the Indian companies to add capacities, to grow. And at the same time, the Indian companies have also decided to put in a lot of capex.

If if you look at the capital spends, which these set of companies have done in the last two years, the combined two years’ capex is much more than the last five- seven years capex which is an indication of the outlook which the management of these companies are looking towards.

If I were to combine all these factors, the outlook for that set of companies is going to be much better than what they are today. The growth will be much better than what they are today given the kind of capex which they have done. So, we continue to remain positive on that segment.

And of course, the prices of that basket have also shrunk in line with the overall category?

They have been relatively less impacted but nonetheless, from the highs, some of them have seen some bit of price cuts.

The other pocket in your portfolio, includes the small textile names -- catering to the domestic or the export markets. What is your view on this space?

We see the domestic branded players to be driven by the broader consumption theme. That is one area of investible segment which they are looking at right now. There is one more segment -- the home textile export-oriented companies. Indian companies are gaining competitive advantage over China because of cost competitiveness as cotton is available in India. We are one of the largest cotton growers of the world. We see a decent rate of growth there. So, we have backed some of the decent managements, some of the leaders in their own space because the opportunity size is big and these companies will continue to grow because of the strength they have displayed in the past.

What is your view on some of the mid and small NBFCs that you have in your portfolio? There was a time two, three years back when NBFCs were running up. Then they went sideways and now people are not extremely hot on that sector. How are you analysing the midcap NBFC space right now?

If we look at the long-term trend of these NBFCs, we have seen that these NBFCs have identified and grown within those niches. The opportunity is still very wide and the interest rate cycle will keep having its own cycles. It is sometimes high and sometimes low, but these NBFCs have displayed strength during the last 10 years and have also maintained their asset quality quite well. We get excited looking at the long-term trends and given the opportunity size, we have backed them up. There may be a phase where they may see spreads compression in the next one year or so but we have to look beyond this next five to seven months.

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