IDFC Small and Midcap Equity Fund-Growth BUY Rs 14.36

With its focus on taking the choicest pickings offered by the mid and small-cap segment, this scheme not only offers good returns but takes advantage of diversifications too.

In view of the fact that the current flavour in the market is that of small and mid-cap stocks, we have decided to pick a scheme that has been doing extremely well with its stock selection from these two segments. The year-to-date performance of IDFC Small and Midcap Scheme is at 93.62 per cent returns while for the last one year it has been at 103.33 per cent as against category returns of a mere 60.83 per cent. What makes the scheme exciting is that it has done equally well in the last three months and the last trailing one month with returns of 22.32 per cent and 3.85 per cent respectively. It must be noted that the Sensex in the last trailing one month has been negative with 2.22 per cent returns against which the scheme could yield positive returns. Also, we would like to draw our readers’ attention to its monthly returns wherein the scheme for November (as on the 13th) has provided returns of 8.33 per cent which is good at a time when the markets have been very volatile. This shows the capability of the fund manager to generate returns during even such phases of highs and tows.

In our opinion, the scheme should do well from a one-year point of view and hence our recommendation is that investors must opt for it with its present NAV of Rs 14.36 with a one year target of Rs 20, thereby creating space for 40 per cent appreciation.
But before we discuss its portfolio compositions and industry exposure let us touch upon the brief background of the scheme. The scheme was launched on March 7, 2008 as a close-ended scheme with the disclosure that it would automatically be converted into an open-ended one after three years. But very recently, i.e on September 11, 2009, the scheme has been converted into an open-ended one and is now available for buying and selling.

As regards its portfolio, the fund manager has given the highest preference to Oracle Finance with weightage of 4.95 followed by 4.56 on Spice Jet. The top ten holdings account for 38 per cent of the total portfolio. Industry-wise, the highest exposure is on consumer non-durables with a weightage of 22 per cent followed by software with 14.61 per cent and cement with 9.69 per cent. The scheme has a good balance of growth and steady companies and that should augur well for it to perform well in the future. As on October, 87 per cent of the fund has been invested in equity while the balance is in cash and instruments like short-term debt.

In other words, the fund manager was sitting on a cash component to the tune of 13 per cent by end of October. Despite that, as mentioned before, the scheme yielded excellent returns in the first half of November. We would suggest that the scheme should not only be selected for the portfolio from a returns’ point of view but also from a diversification point of view as many of the other schemes are heavily tilted in favour of large and mid-cap companies. With this scheme one could diversify and ride the rally in the mid and small-cap companies’ segment. So go ahead and invest in this one.

Funds NAV as well as returns are as on 13/11/09