DSP Equity Opportunities Fund: Pursuing Growth Through Active Portfolio Management
Jan 09, 2020

Author: Divya Grover

DSP Equity Opportunities Fund: Pursuing Growth through Active Portfolio Management
(Image source: photo created by ijeab - www.freepik.com)

The year 2020 is expected to bring in economic recovery. Fortunes of mid cap companies are closely tied to economic growth. As a result, quality mid cap stocks across different industries available at attractive valuations can prove to be multi-baggers. Meanwhile, revival in economy may also benefit some of large cap stocks that were beaten down in the last couple of years. Large caps as a category may continue to be safe bet for investors. Investing in large & midcap fund may therefore prove to be a worthwhile proposition.

DSP Equity Opportunities Fund (DEOF) is one such large & midcap fund that aims to generate capital appreciation from a portfolio of large and midcap companies.

The fund was launched in May 2000 and currently has an asset size of Rs 5,589, one of the largest in the large & midcap fund category. DEOF is managed by Mr Rohit Singhania (Since June 2015) while Mr Jay Kothari is the dedicated fund manager for overseas investment.

Graph 1: Growth of Rs 10,000 if invested in DSP Equity Opportunities Fund 5 years ago

DEOF has exhibited sound performance in the last five years. If you had invested Rs 10,000 in DEOF five years back on January 08, 2015, it would have appreciated to Rs 17,287 now (as calculated on January 08, 2020) at a compounded annualised growth rate of 11.6%. In comparison, a simultaneous investment of Rs 10,000 in its benchmark Nifty LargeMidcap 250 - TRI would now be worth Rs 15,874 (a CAGR of 9.7%). Over the last five years the fund has generated decent lead over the benchmark. Even though the lead tapered during the volatile market phase of 2018, the fund managed to regain it in the following year.

Graph 1: Growth of Rs 10,000 if invested in DSP Equity Opportunities Fund 5 years ago
 
Data as on January 08, 2019
(Source: ACE MF)


Graph 2: DSP Equity Opportunities Fund's year-on-year performance

Graph 2: DSP Equity Opportunities Fund's year-on-year performance
 
*YTD as on January 08, 2019
(Source: ACE MF)

Launched in May 2000, DEOF has a performance track record of close to two decades. The year-on-year performance comparison of DEOF with respect to its benchmark Nifty LargeMidcap 250 - TRI shows that the fund outperformed the index in 6 out of last 10 calendar years. The fund participated well in most market rallies and generated superior returns over the index. While the fund was able to manage the downside during the CY 2011 market slide, it struggled to do so in CY 2018 and trailed the benchmark. Its performance improved significantly in CY 2019 and the fund managed to outpace the benchmark by over 5 percentage points. In the current year, the fund’s performance till now is nearly in line with the benchmark.


Table: DSP Equity Opportunities Fund's performance vis-a-vis category peers

Scheme Name Corpus (Cr.) 1 Year (%) 2 Year (%) 3 Year (%) 5 Year (%) Std Dev Sharpe
Mirae Asset Emerging Bluechip 9,229 8.09 8.64 17.54 21.56 14.41 0.21
Invesco India Growth Opp Fund 2,239 4.86 10.33 15.38 14.98 12.60 0.23
Sundaram Large and Mid Cap Fund 953 5.19 9.48 15.11 14.79 13.56 0.18
Canara Rob Emerg Equities Fund 5,339 0.82 5.68 14.95 19.41 15.14 0.16
LIC MF Large & Midcap Fund 603 3.24 6.81 14.94 NA 13.58 0.17
Principal Emerging Bluechip Fund 2,117 -2.53 3.56 13.35 17.23 15.21 0.12
Kotak Equity Opp Fund 2,928 5.69 6.09 13.32 14.58 12.75 0.16
Essel Large & Midcap Fund 105 5.62 5.53 13.29 NA 14.04 0.12
DSP Equity Opportunities Fund 5,589 3.23 5.02 12.77 14.32 13.80 0.13 
Edelweiss Large & Mid Cap Fund 489 3.64 8.34 12.34 12.48 12.37 0.19
IDFC Core Equity Fund 2,781 -0.69 4.39 12.32 12.31 13.44 0.11
Tata Large & Mid Cap Fund 1,568 7.75 7.32 11.69 13.33 12.29 0.16
SBI Large & Midcap Fund 2,847 3.17 6.41 11.42 13.46 12.93 0.14
ICICI Pru Large & Mid Cap Fund 3,567 1.54 3.56 10.60 10.23 12.47 0.07
L&T Large and Midcap Fund 1,351 -3.79 1.80 10.29 11.31 14.28 0.09
Aditya Birla SL Equity Advantage Fund 5,070 -1.75 0.89 9.83 13.66 15.30 0.09
HDFC Growth Opp Fund 1,374 1.98 3.94 9.24 7.07 13.50 0.08
Quant Large & Mid Cap Fund 4 -1.74 0.55 8.92 16.01 12.96 0.03
Franklin India Equity Advantage Fund 2,608 -0.63 3.46 8.42 11.16 12.53 0.06
BOI AXA Large & Mid Cap Equity Fund 176 -5.42 1.43 8.21 8.49 16.06 0.08
Nifty LargeMidcap 250 Index - TRI 0.12 5.43 12.46 12.89 14.08 0.13
Returns are on a rolling basis and in %, calculated using Direct Plan - Growth option. Those depicted over 1-Yr arecompounded annualised.
Data as on January 08, 2020
(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.


DEOF outperformed the benchmark and category average across rolling period, except 2-year rolling period where its performance was nearly in line with the index and peers. Over the longer time horizon of 5-year rolling period, the fund's outperformance was of around 2 percentage points.

The fund stood ahead of many of its peers on 1-year, 2-year, 3-year and 5-year rolling return basis. Mirae Asset Emerging Bluechip Fund, Invesco India Growth Opportunities Fund, Sundaram Large and Mid Cap Fund and Canara Robeco Emerging Equities Fund were among the category toppers during this period.

In terms of risk-return profile, the fund's volatility has been reasonable and it has managed to reward investors with decent risk-adjusted returns.

Investment strategy of DSP Equity Opportunities Fund

Categorised as large & midcap fund, DEOF is mandated to invest minimum 35% of its assets each in equity and equity related instruments of large and mid cap companies. It can invest up to 30% of its assets in other equity instruments, as well as debt and money market instruments. Accordingly, the fund invests in a portfolio of predominantly large and mid cap stocks. The fund is sector agnostic to identify best opportunities across industries. DEOF actively manages the portfolio along with some tactical calls taken to capitalize on market trends. The fund uses both `top-down' and `bottom-up' approach to identify growth and value stocks.

The investment direction is guided by the investment manager's views on the macro economy with a particular focus on the micro impact of economic reforms, restructuring and mergers & acquisition activity. To stocks to be included in the investment universe is selected using in-house research focusing on the historical and current financial condition of the company, capital structure, business prospects, strength of management, responsiveness to business conditions, product profile, brand equity, market share, competitive edge, research and technological know-how and transparency in corporate governance.


Graph 3: Portfolio allocation and market capitalisation trend in DSP Equity Opportunities Fund

Graph 3: Portfolio allocation and market capitalisation trend in DSP Equity Opportunities Fund
 
Holding (in %) as on December 31, 2019
(Source: ACE MF)

DEOF invests in a mix of large and midcap stocks though with a large cap bias. The fund’s large cap allocation in the last one year is in the range of 50-60%. Its midcap allocation has averaged 35% during the period. DEOF also seeks opportunities in small caps where it has allocated 3-7% of its assets. In the last one year the fund has gradually marked down its exposure in small caps while the allocation towards large cap has been increased due to high volatility seen in broader market. The fund remains fully invested in equities; its cash holdings have been under 6% mark.



Graph 4: Top portfolio holdings in DSP Equity Opportunities Fund

Graph 4: Top portfolio holdings in DSP Equity Opportunities Fund Graph 4: Top portfolio holdings in DSP Equity Opportunities Fund
Holding (in %) as on December 31, 2019
(Source: ACE MF)

As on December 31, 2019 DEOF held a well-diversified portfolio of 61 stocks. The top 10 stocks constitute 41.7% of the portfolio. ICICI Bank has the highest stock allocation of 6.9%, followed by HDFC Bank at 6.8%. Notably, four stocks in the top 10 holding belong to banking sector. Infosys, Axis Bank and Bharti Airtel are the other major holding. Rest of the stocks in the top 10 holding have allocation in the range of 2-4%.

Sectorally, the fund has the highest exposure to Banks at 29%. Consumption and Engineering with allocation of around 7% each along with Petroleum Products and Infotech with allocation of around 6.5% each form the next highest sectoral allocation. The other prominent sectors include Pharma, Telecom services, Finance, Construction and Fertilisers.

Top contributors

Among the stocks in the portfolio, ICICI Bank contributed the most to the fund's gains in the last one year with a weighted return of 4.7%. The fund also gained from its holdings in HDFC Bank, Bharti Airtel, PI Industries, Ipca Laboratories, Kotak Mahindra Bank, Reliance Industries, and SBI, among others.

On the other hand stocks like Apollo Tyres, Cummins India, Exide Industries, Mahindra & Mahindra Financial Services, Vedanta, etc. eroded some of its gains.

Suitability of DSP Equity Opportunities Fund

DEOF has performed reasonably well, especially during longer time horizons, delivering decent risk-adjusted returns. Though the fund holds a well-diversified portfolio of stocks/sectors, high concentration to Banking sector may lead to increased volatility if the sector comes under pressure due to any reason. The fund's higher allocation to large and midcaps along with lower levels of exposure to small caps can help it create long term wealth though at a higher risk. This makes DEOF suitable for aggressive investors with investment horizon of at least 5 years or more.

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.

Editor's note: The last few years have not been among the best for equity mutual funds. While most funds have underperformed or are struggling to match the returns of the benchmark, there are few funds that have the potential to constantly generate alpha for its investors. And we have identified five such high alpha generating funds, in our latest report 'The Alpha Funds Report 2020'. Do not miss our latest research finding. Get your access to this exclusive report, right here!


​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. Rahul Goel;

  13. I V Subramaniam.

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. Office: 103, Regent Chambers, 1st Floor, Nariman Point, Mumbai - 400 021 Corp. Office: 16 Jolly Maker Chambers II, 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



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