SBI Contra Fund: Witnessing Turnaround Growth

May 26, 2022

Listen to SBI Contra Fund: Witnessing Turnaround Growth

00:00 00:00


The Indian equity market is going through a rough patch amidst a spike in inflation, increasing global interest rates, policy rate hikes by the RBI, a depreciating rupee, and FPI sell-offs.

It is noteworthy that during a stiff market correction, many stocks and sectors are temporarily discarded by investors and enter a cheap valuation zone. Such corrections offer a good value buying opportunity for long-term investors looking for fundamentally sound stocks at discounted prices.

Contra Funds aim to invest in such sectors and stocks that are temporarily out of favour and available at a significant discount to their fair valuation but have the potential to grow significantly. They offer a better margin of safety which gives them the potential to generate decent returns over the long run.

SBI Contra Fund is the oldest scheme in the Contra Fund category that has shown a turnaround performance in the last couple of years to figure among the top performers in the category.

Graph 1: Growth of Rs 10,000 if invested in SBI Contra Fund 5 years ago

Launched in July 1999, SBI Contra Fund is the oldest scheme in the Contra Fund category that aims to create a diversified portfolio of stocks spread across market caps and sectors. Notably, the fund lost the attention of investors for a major period due to its sub-par performance, wherein it constantly trailed the benchmark and its peers. Moreover, due to its significant exposure to stocks in the broader market, SBI Contra Fund’s performance derailed completely during the mid and small-cap crash of 2018-19. Nonetheless, SBI Contra Fund has shown a turnaround performance in the last couple of years to find a spot among the top performers in the category. SBI Contra Fund managed to limit the downside risk during the market crash of 2020 compared to the benchmark, while it also stood as the category topper in the ensuing bull phase. The recent outperformance has helped improve its long-term track record as well. Over the last 5 years, SBI Contra Fund has appreciated at a CAGR of around 14.9%, which is higher than the 12.7% CAGR delivered by its benchmark S&P BSE 500 - TRI index. An investment of Rs 10,000 in SBI Contra Fund five years back would have now appreciated to Rs 20,060 compared to Rs 18,191 for a simultaneous investment in its benchmark.

Graph 1
Past performance is not an indicator of future returns
Data as on May 24, 2022
(Source: ACE MF)
 

Table: SBI Contra Fund's performance vis-á-vis category peers

Scheme Name Corpus (Cr.) 1 Year 2 Year 3 Year 5 Year 7 Year Std Dev Sharpe
SBI Contra Fund 4,491 17.74 57.56 21.78 14.93 12.80 24.21 0.23
Invesco India Contra Fund 8,655 5.52 34.27 14.53 14.32 14.13 22.69 0.17
Kotak India EQ Contra Fund 1,260 7.44 36.90 14.23 14.90 13.07 22.79 0.17
S&P BSE 500 - TRI 7.47 37.97 13.87 12.70 11.69 22.85 0.16
Returns are point to point and in %, calculated using the Direct Plan-Growth option. Those depicted over 1-Yr are compounded annualised.
Data as on May 24, 2022
(Source: ACE MF)
*Please note, this table only represents the best performing funds based solely on past returns and is NOT a recommendation. Mutual Fund investments are subject to market risks. Read all scheme-related documents carefully. Past performance is not an indicator for future returns. The percentage returns shown are only for indicative purposes.
 

SBI Contra Fund has shown turnaround performance in the last couple of years which has helped it to generate a significant lead over the benchmark and peers. In the last 1-year and 2-year period, SBI Contra Fund has generated a remarkable lead of around 10-20 percentage points over the benchmark S&P BSE 500 - TRI and also outpaced its peers. The recent superior performance has improved its long-term track record as well. Over the longer period of 5-year and 7-year, SBI Contra Fund has now managed to record a significant lead over the benchmark, whereas its performance was nearly in line with the category average.

SBI Contra Fund has also shown improvement in terms of risk-adjusted returns. The fund's volatility, as denoted by the standard deviation, is higher than the benchmark and its peers. However, the Sharpe ratio of the fund is currently the highest in the category and way ahead of the benchmark, thus compensating investors for the level of risk taken.

SBI Contra Fund: Witnessing Turnaround Growth
(Image Source: www.freepik.com - photo created by our-team)
 

Join Now: PersonalFN is now on Telegram. Join FREE Today to get ‘Daily Wealth Letter’ and Exclusive Updates on Mutual Funds

Investment strategy of SBI Contra Fund

Categorised as Contra Fund, SBI Contra Fund has the mandate to invest a minimum of 65% of its assets in equity and equity-related instruments by following a contrarian investment strategy. The balance can be invested in foreign securities, debt and money market instruments, Rights, Derivatives, units of REITs & InvITs, etc. SBI Contra Fund focuses on companies and sectors that are currently out of favour but have the potential to bounce back and grow in the long run. It looks for temporarily neglected stocks which have strong intrinsic value and fundamental attributes. SBI Contra Fund also focuses on under-owned sectors that are out of favour but have high potential to show a turnaround.

SBI Contra Fund aims to timely identify attractive opportunities across market caps and sectors, to benefit from the turnaround potential of the beaten-down or temporarily neglected stocks and out of favour sectors. It usually holds substantial exposure across the market cap spectrum, viz., large-cap, mid-cap, and small-cap stocks. SBI Contra Fund follows a combination of the 'top-down' and 'bottom-up' approach to pick stocks within the contrarian investment theme.

Graph 2: Top portfolio holdings in SBI Contra Fund

Graph 2 Graph 2
Holding in (%) as of April 30, 2022
(Source: ACE MF)
 

SBI Contra Fund usually holds around 55-65 stocks spread across market caps. As of April 30, 2022, the fund held 66 stocks in its portfolio, along with a few overseas stocks. The fund has restricted the maximum allocation in each stock to under 5%. The top 10 stocks account for 25.2% of its assets consisting of large-cap and mid-cap stocks such as Tube Investments of India, GAIL (India), ICICI Bank, HCL Technologies, and Bandhan Bank among others. SBI Contra Fund usually records a higher turnover of around 130-160%.

SBI Contra Fund also holds exposure of up to 5% in overseas equities. Cognizant Technology Solutions Corporation and Netflix Inc. are the overseas equities that currently form part of the fund's portfolio.

In the last one year, SBI Contra Fund has made the most of the rally in the broader market and has benefited from its holdings in Neogen Chemicals, The Indian Hotels Company, Bank of Baroda, Ingersoll-Rand (India), Chennai Petroleum Corporation, ICICI Bank, Carborandum Universal, among others.

SBI Contra Fund's portfolio is not too concentrated towards any particular set of sectors and is currently diversified across 25 sectors. It has the highest sector exposure in Banks with an allocation of 12.8%, followed by Engineering, Power, Construction, Infotech, and Consumer Durables. Auto, Consumption, Petroleum, Cement, Oil & Gas, and Pharma are among the other prominent sectors in the fund's portfolio.

Suitability

SBI Contra Fund has showcased extraordinary performance in the last couple of years, wherein it outpaced the benchmark and its Contra Fund peers by a wide margin. While the volatility registered by the fund is on the higher side, it has managed to outperform in terms of risk-adjusted returns. The broad-based market rally witnessed after the March 2020 crash has helped the fund achieve this feat.

SBI Contra Fund avoids taking concentrated bets on any particular stock or sector. It usually maintains a diversified portfolio of stocks spread across market caps and sectors to benefit from the various opportunities present in the market. The current fund manager has done well to turn around the fortune of the fund in the last couple of years.

SBI Contra Fund is suitable for investors seeking an aggressively managed Contra Fund with a multi-cap strategy with an investment horizon of at least 5-7 years.

 

Warm Regards,
Divya Grover
Research Analyst

 

PS: If you are looking for quality mutual fund schemes (including Equity-linked Saving Schemes) to add to your investment portfolio, I suggest you subscribe to PersonalFN's premium research service, FundSelect. PersonalFN's FundSelect service provides insightful and practical guidance on which mutual fund schemes to Buy, Hold, and Sell.

Currently, with the subscription to FundSelect, you could also get Free Bonus access to PersonalFN's Debt Fund recommendation service DebtSelect.

If you are serious about investing in a rewarding mutual fund scheme, subscribe now!

Note: This write up is for information purpose and does not constitute any kind of investment advice or a recommendation to Buy / Hold / Sell a fund. Returns mentioned herein are in no way a guarantee or promise of future returns. As an investor, you need to pick the right fund to meet your financial goals. If you are not sure about your risk appetite, do consult your investment consultant/advisor. Mutual Fund Investments are subject to market risks, read all scheme related documents carefully.

 

DISCLOSURE AS PER SECURITIES AND EXCHANGE BOARD OF INDIA (RESEARCH ANALYSTS) REGULATIONS, 2014

About the Company including business activity

Quantum Information Services Private Limited (QIS) was incorporated on December 19, 1989.

QIS was promoted by Mr Ajit Dayal with an objective of providing value-based information/views on news related to equity markets, the economy in general, sector analysis, budget review and various personal products and investments options available to the Public. It was the first company to start equity research on an institutional level.

'PersonalFN' is a service brand of QIS and was started in the year 1999. In 1999, the Company registered the Domain name www.personalfn.com for providing information on mutual funds and personal financial planning, financial markets in general, etc. and services related to financial planning and research in various financial instruments including mutual funds, insurance and fixed income products to customers. It offers asset allocation and researched investment recommendations through its financial planning services.

Quantum Information Services Private Limited (QIS) is registered as Investment Adviser under SEBI (Investment Adviser) Regulations, 2013 and having Registration No.: INA000000680. In terms of the second proviso to Regulation 3 (1) of SEBI (Research Analysts) Regulations, 2014 the Company is not required to obtain Certificate of registration from SEBI.

Disciplinary history

There are no outstanding litigations against the Company, its subsidiaries and its Directors.

Terms and condition on which its offer research report

For the terms and condition for research report click here.

Details of associates

  1. Money Simplified Services Private Limited;

  2. PersonalFN Insurance Services India Private Limited;

  3. Equitymaster Agora Research Private Limited;

  4. Common Sense Living Private Limited;

  5. Quantum Advisors Private Limited;

  6. Quantum Asset Management Company Private Limited;

  7. HelpYourNGO.com India Private Limited;

  8. HelpYourNGO Foundation;

  9. Natural Streets for Performing Arts Foundation;

  10. Primary Real Estate Advisors Private Limited;

  11. HYNGO India Private Limited;

  12. Suresh Lulla;

  13. I V Subramaniam;

  14. Murali Ananthan Krishnan.

Disclosure with regard to ownership and material conflicts of interest
  1. ‘subject company’ is a scheme on which a buy/sell/hold view or target price is given/changed in this Research Report;

  2. Neither QIS, it's Associates, Research Analyst or his/her relative have any financial interest in the subject Company;

  3. Neither QIS, it's Associates, Research Analyst or his/her relative have actual/beneficial ownership of one per cent or more securities of the subject Company, at the end of the month immediately preceding the date of publication of the research report;

  4. Neither QIS, it's Associates, Research Analyst or his/her relative has any other material conflict of interest at the time of publication of the research report except that QIS (PersonalFN) is, as per SEBI (Mutual Funds) Regulations 1996, an associate / group Company of Quantum Asset Management Company Private Limited and Trustees and Sponsor of Quantum Mutual Fund (QMF) and to that extent there may be conflict of interest while recommending any schemes of QMF. However, any such recommendation or reference made is based on the standard evaluation and selection process, which applies uniformly for all Mutual Fund Schemes. The payment of commission (upfront / annualized & trail), if any, for any Schemes by QMF to QIS (PersonalFN) is also at arm's length and as per prevailing market practices.

Disclosure with regard to receipt of Compensation
 
  1. Neither QIS nor it's Associates have received any compensation from the subject Company in the past twelve months;

  2. Neither QIS nor it's Associates have managed or co-managed public offering of securities for the subject Company;

  3. Neither QIS nor it's Associates have received any compensation for investment banking or merchant banking or brokerage services from the subject Company;

  4. Neither QIS nor it's Associates have received any compensation for products or services other than investment banking or merchant banking or brokerage services from the subject company in the past twelve months.

  5. Neither QIS nor it's Associates have received any compensation or other benefits from the subject Company or third party in connection with the research report

General disclosure
  1. The Research Analyst has not served as an officer, director or employee of the subject Company.

  2. QIS or the Research Analyst has not been engaged in market making activity for the subject Company.

Click here to read PersonalFN's Mutual Fund Rating Methodology

Subject Company means Mutual Fund Schemes

Quantum Information Services Private Limited CIN: U65990MH1989PTC054667 Regd. & Corp. Office: 103, Regent Chambers, 1st Floor, Nariman Point, Mumbai - 400 021

Email:info@personalfn.com Website: www.personalfn.com Tel.: 022 61361200 Fax.: 022 61361222 SEBI-registered Investment Adviser. Registration No. INA000000680, SEBI (Investment Advisers) Regulation, 2013



Add Comments