R Srinivasan, chief investment officer-equity, at SBI Mutual Fund, is known for his skill in picking mid-caps and small-caps. He manages SBI MF’s Small Cap Fund, known for consistent outperformance over the benchmark and its peers.
Srinivasan, however, has stated that he has no secret or unique approach towards fund management. “We run a bottom-up approach to stock-picking in this fund. The basic philosophy is quite cliched. We try to buy a good business run by competent guys at a reasonable price,” he told market daily Business Standard.
It is far from the simple task it seems.
“The devil lies in the details — as in what constitutes a good business model and assessing management competence — and this is where the strength and quality of our research team and the persistence of our investment process plays a large role,” explained Srinivasan to BS.
Owing to the hard yards put in during research, SBI Small Cap Fund was able to identify some multi-baggers in the post-Covid period early on, the report pointed out.
As per BS, the stocks that contributed the most to the scheme’s returns in the last three years are Dixon Technologies, Elgi Equipments, Rajratan Global Wires, Indostar Capital and Vedant Fashions. The ones that did not do well are Engineers India, Rossari Biotech, GE T&D India, Star Cement and City Union Bank.
Srinivasan, as per the report, further noted that even some of the non-performers can do well in the future, as investments in small-cap funds are made with an investment perspective that is much longer than three years. A case in point here is Rajratan Global Wires, which was flat for more than three years before shooting up multi-fold, mentioned the market expert.
According to Srinivasan, the biggest risk in managing a small-cap fund is the risk of wrongly evaluating a business or its management while the second major risk is the lack of liquidity, said the report.
Owing to this liquidity concern, SBI Small Cap Fund stopped accepting lump-sum inflows in 2015. The scheme is the second biggest in its category, with assets under management (AUM) of more than ₹15,000 crore, informed BS. This restriction on inflows helped the fund perform consistently, said Srinivasan.