A communication received from the company endeavours to provide conviction to our readers as to why it’s time for the Small & Midcap theme?
Why is it time for the Small & Midcap Theme?
The large caps as suggested by the S&P BSE Sensex haven’t really done much in the last 3 years. The S&P BSE Sensex is slightly above its peak of Nov 2010, but the same is not the case for Midcaps and Small caps that are currently trading at a significant discount from Nov 2010 levels. These indices are still trading at a reasonable discount to their historical long term P/E & P/B average.
Historically, we have seen a high correlation between GDP Growth & Earnings growth. With expected recovery in GDP having a positive impact on earnings, the prices are currently supportive of these valuations.
Why Birla Sun Life Emerging Leaders Fund?
The Small and Mid Cap theme is all about stock selection rather than asset allocation. At Birla Sun Life, a stock will only be selected from the investment universe if it fits into our core investment philosophy.
Some of the key parameters for stock selection are:
- Sustainable Growth: The fund will buy quality businesses which have a sustainable model and there is a visible opportunity to scale the business.
- High Quality Management: This remains an important criterion for stock selection. Even though a business is sustainable, it won’t find investment allocation if it does have a quality management running the business.
- Capital Efficiency: The Fund would buy stocks that have superior capital efficiency in terms of ROCE, ROE and have Competitive Industry dynamics
- Attractive Valuations: Valuations will be one of the most important parameter while deciding on a stock. The fund will adopt a Value investing approach, with a high margin of safety in the endeavour to generate superior returns.
NFO starts on 25th April 2014 and closes on 30th April 2014