DSP BlackRock Micro Cap - Rock Solid

Indian equity markets have been going through challenging times, on the back of rising interest rates, expectations of an economic slowdown, earning down-grades and weak global cues. In the backdrop of a slowdown in domestic growth and global uncertainty, equity markets have corrected quite a bit, currently trading at close to their 52-week low. This could,  however, be an opportune time to start building an ideal equity portfolio for long-term wealth creation. Hence, we present one of the best and most consistently-performing Mid Cap and Small Cap fund – DSP BlackRock Micro Cap Fund.

DSP BlackRock Micro Cap is an open-ended equity fund, which invests primarily in the stock of companies not part of the top 300 by market capitalisation. The fund focuses on businesses with scalability. It follows a bottom-up stock picking approach, as Micro Caps are generally varied, not correlated to broader markets, not sector specific, and there is a significant opportunity for re-rating of these stocks.

Apoorva Shah, a skilled fund manager, has been in charge of the fund since April 2008, aided by Anup Maheshwari (Head of Equities) and S Naganath (President and CIO), who provide that extra sup-port. They have an average experience of 15 years in fund management, and make a team that is among the best in the industry. The fund is also co-man-aged by Vinit Sambre and Mehul Jani.

Launched as a three-year close ended scheme, it has been converted into an open ended scheme with effect from June 15, 2010. Since its inception, the fund has generated a return of 10.38% (CAGR), significantly out-performing the benchmark BSE Small Cap, which delivered a CAGR of 1.59%. In CY 2009, when the category delivered a 98% return, the fund generated 116%. In CY 2010, it generated a 43.86% return for its investors, when the category delivered 20.67% return.

DSP Blackrock is a well-diversified fund, with around 40 to 50 stocks in its portfolio. Small Caps and Mid Caps constitute around 70% and 29% of the portfolio, respectively. The fund is focusing on three themes – material handling, consumption, and agrochemicals and fertilisers. Increase in capacity to be witnessed in steel, power generation and Indian ports, would be a key earning driver for material handling companies.

The MGNREGA scheme layout would triple in the next 3 years, auguring well for the rural consumption theme. Introduction of new products, broadening distribution networks, improving rural earnings due to higher MSPs and MGNREGA, and favourable government policies could be earning drivers for agrochemicals and fertiliser companies.

Currently, Mid Cap and Small Cap stocks are available at far cheaper valuations as compared to Large Caps. Backed by a good fund management team as well as a proven track record, DSP BlackRock Micro Cap Fund is well positioned to capture opportunities in the Mid Cap and Small Cap segments. Investors with a sizeable risk appetite and the patience to hold the fund with a five-year time horizon can look to invest in this fund in a staggered manner. As the fund invests a good portion of the portfolio in Small and Micro Cap stocks, investors should not allocate more than 10% of their portfolio to it.