Bandhan MF’s Emerging Businesses Fund has raced into top quartile in the small cap segment since Manish Gunwani took charge in Jan 23.Manish says a combination of an enlarged research team covering more small cap stocks coupled with getting key cycle calls right have helped performance.
Energy transition is a theme the fund house capitalized well on – with domestic power businesses, exporters of power equipment and an unconventional bet on power financiers.
Conviction in the bull market enabled him to play the valuation convergence theme well across sectors including financials, QSR etc.
The fund has around 115 stocks – which seems optically high –but Manish says it still is only 1 out of 5 or 6 stocks in the large investible universe of this fund, which he estimates as around 500 stocks with healthy earnings growth prospects. Maintaining a well diversified portfolio also helps from a risk management perspective as it cushions the impact of macro events on the portfolio.
Manish discusses 7 themes that guided stock selection – 3 are GARP related, 3 are thematic and 1 is a special situation.
Small caps have done well – but there is no need to get worried about too much froth in this space or lack of depth in this space. There continue to be plenty of reasonably priced growth stories. MF industry holdings in this space hasn’t reached any kind of abnormally high levels – in fact we will increasingly see more institutionalization as overseas investors also start cherry picking in this space even as domestic investors continue to invest in equity due to relatively unattractive post-tax fixed income returns.