A turnaround story

FUND PICK: DSP Merrill Lynch Equity Fund

The fund's allocation to mid- and small-cap stocks has gone up significantly.

DSPML Equity's performance in the last three years has been impressive. In fact, its good run has led to an upgradation of its Value Research Star Rating from three to four-star since September 2005.

The fund's good performance has also resulted in an almost 200 per cent growth in its assets since December 2004, when it was an Rs 83 crore fund to Rs 247 crore in October 2005.

However, till 2002, the fund struggled, as it under-performed its peer group during the testing times of the tech collapse. After being launched in April 1997, the fund met with some early success on the back of booming stock markets.

However, that was to fade away in the subsequent collapse of the markets. Post-2002, the fund's performance has been quite impressive. Not only has it delivered good returns, but they have also been backed by consistency.

And all this seems to be the result of good fund management, without getting overly aggressive on a few stocks or sectors. Long term buys like Pantaloon Retail, Bharat Forge, Ranbaxy have proved immensely beneficial, while it has also capitalized well on the recent upswings in stocks like Balrampur Chini and Sesa Goa.

Currently, the fund is bullish upon sectors like consumer non-durables, financial services and diversified.

Though the portfolio still has a large-cap bias, the allocation to mid- and small-cap stocks has gone up significantly. As per the October 2005 portfolio, they accounted for half of its stock holdings.

To mitigate the risks of investing in smaller companies, the fund has increased the number of stocks in the portfolio. As On October 31, 2005, it had 73 stocks, which seems to be a bit too high. This is because 40 of these account for less than one per cent of the portfolio, and until and unless many of these become multi-baggers, it will not have a significant impact on the returns. 
 

TOP HOLDINGS
Equity Holdings (As on October 31, 2005)	Value (Rs Cr)	Net Assets (%)
Reliance Industries	12.03	4.87
Infosys	10.07	4.08
BHEL	9.24	3.74
ONGC	8.35	3.38
SBI	7.09	2.87
ITC	6.17	2.50
Indoco Remedies	6.03	2.44
Bharati Shipyard	5.68	2.30
Larsen & Toubro	5.41	2.19
Tata Steel	5.31	2.15
TCS	5.20	2.11
Amtek India	5.18	2.10
Rico Auto	5.17	2.09
Eveready Industries	4.95	2.01
Raymond	4.72	1.91

Overall, not only has the fund turned around well, but is continuing with its good run. It deserves a closer look.

- Value Research

Returns in % as on November 17, 2005

All equity categories managed positive returns for the past month as the bull run continued in equity markets. 
 

EQUITY FUNDS Average category returns (%)
	1 month	1 year
FMCG	2.66	69.39
Banking	0.04	58.54
Tax planning	2.96	57.49
Diversified	3.65	51.84
Auto	2.97	48.93
Technology	6.32	43.10
Index	4.22	40.26
Pharma	1.08	24.44
Petroleum	5.72	17.39

Technology funds were the best performing category in the past month, with returns amounting to 6.32 per cent. Petroleum sector funds (5.72 per cent) and index funds (4.22 per cent) came in next. 
 

LEADERS Diversified funds
	1 month	1 year
SBI Magnum - Emg. Business	2.38	95.72
SBI Magnum Global Fund	3.88	91.69
SBI Magnum - Contra	4.32	87.08
SBI Magnum Multiplier Plus	6.43	81.96
Prudential ICICI Emerging STAR	4.95	78.63
Reliance Growth	2.61	75.10
Prudential ICICI Discovery	2.84	71.38
Franklin India Prima Fund	4.24	70.66
Taurus Starshare	4.52	69.87
Cangrowth Plus	8.69	68.70

On an annual basis, FMCG funds continued to top the table with a return of 69.39 per cent. Diversified equity funds also did well, managing a return of 51.84 per cent for the past year. Nearly 74 per cent of diversified funds outperformed the Sensex during the past 12-month period. 
 

LAGGARDS Diversified funds
	1 month	1 year
PRINCIPAL Global Opp.	2.75	10.86
LIC Equity Fund	4.01	27.51
Deutsche Investment Opp.	1.68	32.78
UTI India Advantage Equity	1.12	33.69
LIC MF Growth Fund	4.49	34.25
PRINCIPAL Dividend Yield	4.17	34.39
Birla Dividend Yield Plus	3.82	35.77
Principal Resurgent India	4.15	35.89
UTI Master Growth	3.56	37.45
Deutsche Alpha Equity	4.41	38.86
Source: www.mutualfundsindia.com

Three funds from the SBI Mutual Fund stable, SBI Magnum Emerging Businesses, SBI Magnum Global and SBI Magnum - Contra, topped the annual return table.