DSP FLEXI CAP FUND

An open ended dynamic equity scheme investing across large cap,

mid cap, small cap stocks.

We are underperforming; therefore invest

 If you are going through hell, keep going -Winston Churchill
Literally speaking, we are not going through hell as Churchill’s quote says, but nonetheless
we are following the advice coming with it - continuing to do where we believe our
strength lies. DSP FlexiCap Fund has been going through a rough patch. We couldn’t fully
catch the commodity or value side rallies of past few months as we chose to stay
disciplined towards our investment framework. We are very well aware of this and have
the right ingredients in place for performance to bounce back.

Through this note, we again try to highlight the framework of investing in good quality
businesses with growth visibility and run by decent managements, albeit by paying a slight
premium.

We will also try to reason as to why its not prudent to chase the momentum present in
some part of the market and change the portfolio positioning at this point. At best, there
can be marginal additions where growth is coming back structurally and we can be sure of
business models and managements to fair degree

Black swans like demonetisation, covid or war do appear in the scene but the truth is
markets do bounce back and every time strong businesses emerge even stronger. We
would like to play for this mean reversion with our framework investee companies. No
doubt, it did cost us in terms of volatility or consistency in the near term. However, we’d
rather stay aligned to our framework and go right ( hopefully in near to medium term)
than try to switch sides now and get caught on wrong sides of both the trades

Following 2 pages contains illustrative list of some of our holdings that we continue to hold
or add despite the underperformance and the current narrative not being conducive.
Holdings Our Reasons

HDFC Bank • Ingrained culture enabling growth and profitability at scale within well-laid risk
Ltd. constraints
• Demonstrated best ‘greed and fear’ management – Countercyclically grew retail
loan book >3x in four years post Great Financial Crisis(GFC) and corporate book ~2x
in three years post corporate Non-Performing Assets (NPA) cycle , unlike then
industry behavior
• At the vantage point of new real estate cycle, bringing in the largest mortgage
franchise with 1,000 locations in fold, to propel further with own >3,000 locations
• Merged entity expected to continue with industry leading growth with ~2% Return
on Assets(RoA), >16% Return on Equity( RoE) & trading at depressed at 1-year
forward Price to Book Value (P/B) of 2.5x vs. historical average of 3.5x
SBI Cards and • Cards is a scale business with serious chicken and egg dilemma; spend visibility is
Payment crucial to invest for future growth and downcycles, hence three players maintain
Services Ltd. ~60% of industry for last 10+ years
• Credit cards is a one stop shop for play on India’s consumption story; 26%
Compounded Annual Growth Rate (CAGR) in industry spends over FY12-2 with
>28% avg RoE for large players
• Approx. 50% of Indian adults are SBI’s customer; SBICARD has only ~2%
penetration in this base. Besides there are many other channels to source
business.
• Fast churning & low tenure loans (3-6 months) taken care by smaller size balance
sheet – A well-run, scaled up card co need Rs.2,000 balance sheet to generate
Rs.100 of profits vs. best run banks need Rs. 5,000 balance sheet size to generate
same profits
• Lighter Balance Sheet + Higher interest margins + Higher Fees >> Higher RoEs >>
No dilution
Maruti • Ability to time the model cycle to gain max throughput and re-gaining of lost
Suzuki India market share decisively. Company had low point in share in FY12 @ 38 % which it
Ltd. recouped to >45% by Fy15 furthering to 50% by Fy18
• Extreme consumer centricity – Focus on getting the product right and value
proposition right for Indian consumer over getting swayed by narratives without
fear of falling behind the curve
• Likelihood of mean reversion in many cyclical and supply side headwinds going
forward
Motherson • DNA of manufacturing excellence (from quality to cost to delivery) makes it a
Sumi Systems preferred partner for all global top auto Original Equipment Manufacturer (OEMs).
Ltd. Capability to extend this DNA beyond auto vertical
• Acquisition and turnaround specialist with abovementioned DNA along with
shrewdness of buying cheap at the low-point of cycle and at the behest of
customers
• Large in-house tech set-up of ,1500+ software engineers to support and develop
solutions for managing 270 plants across 41 countries supplying thousands of
different Stock Keeping Units(SKUs)
The sector(s)/stock(s)/issuer(s) mentioned in this document do not constitute any research report/recommendation of the same and the scheme may or
may not have any future position in these sector(s)/stock(s)/issuer(s).
Holdings Our Reasons

ICICI • Float generation is important part of the business- Revenue minus cost is close to
Lombard zero yet the business generates 18-20% RoE; Float CAGR has been ~>20% for 2011-
General 21
Insurance Co • Vintage enabling data analysis acts as key differentiator for underwriting and claims
Ltd. management
• Data analysis >> Better risk selection >> Cross sell >> Float >> Growth and RoE
UltraTech • Substantially higher limestone reserves vs. peers offers cost advantage and
Cement Ltd. durability
• Co taking sincere efforts towards ESG with science-based targets and have obvious
scale advantages in ESG related compliance and costs
• Large part of future expansions through brownfield activities provides superior cash
generation and return opportunities
Gujarat Gas • Indirect play to benefit from manufacturing resurgence in India due to China+1,
Ltd. export promotion and import substitution in a cleaner ESG(Environmental, Social,
Governance) compliant way
• Tailwinds of Govt as well as judicial push against pollution which can provide
optionality of GST(Goods and Service Tax) inclusion
• Monopolistic business model with steady growth, higher profitability and cash
generation

Emami Ltd. • Management knack of choosing and achieving leadership in smaller but niche and
very-high gross margin (~62%%) categories unattended by larger peers
• Superior ability to maintain profits even with revenue / cost volatility aided by high
gross margins and relatively higher discretionary cost items
• Ability to incubate / acquire brands in niche categories and back them with almost
16-18% of sales as Advertising & Promotional(A&P) spends
Radico • Changing industry dynamics with states focusing on transparency in distribution and
Khaitan Ltd. revenue mobilization – In 2017-22 Uttar Pradesh’s liquor excise revenues has gone
up by 258% to Rs.36,000cr by adopting transparent distribution policies
• Co transformation with next gen and professionals’ outstanding and durable
success in premiumization of portfolio
• Backward integration focus to ensure quality of basic ingredient while continuing
premiumization journey
Alkem • Continuing growth at higher than market rate, even in the matured and ‘cash-cow’
Laboratories business, with rising penetration opportunity in East and market share gain
Ltd. opportunity in South
• Healthy margins and return ratios despite continuing investments in India chronic
and US generics businesses

The sector(s)/stock(s)/issuer(s) mentioned in this document do not constitute any research report/recommendation of the same and the scheme may or
may not have any future position in these sector(s)/stock(s)/issuer(s).
Stock selection framework and Portfolio construction discipline

Stock Selection Portfolio Construction

• Business • 80:20
- Industry structure and opportunity Core BMG : Tactical
- Brand and distribution
- Cost Competitiveness • No cash call
- Margin and RoE defense
- Low capex intensity • Large: Mid-Small Cap
65:35
• Management
- Capital allocation • Avg no of stocks
- Averse to dilution ~60
- Competency and integrity

• Growth
- Acceleration
- Visibility and sustainability
- Market share gains

We don't have to be smarter than the rest.

We have to be more disciplined than the rest -- Warren Buffett

The investment approach / framework/ strategy mentioned herein is currently followed by the scheme(s) and the same
may change in future depending on market conditions and other factors. BMG - Business-Management-Growth
Recap of 6 months gone by

Last 6 months have been tough, the fund underperformed the benchmark by 5.1% (Fund -5.7% vs
Nifty 500 TRI -0.6%)*.

Though comparing short term performance (<36 months) of an asset class like equity doesn’t
make sense; however, from an investor’s (fund manager as well as unit holders) perspective, it
would be important for one to understand the nuances and that one need not worry due to
interim underperformance

This will help us conclude and hopefully calm the nerves. If the findings had required any fine-
tuning in thought process and action, keeping the long-term thinking hat and framework
boundaries intact, we would have done that.

Major reasons behind underperformance in the last 6 months

Overweight (OW)/
Sector Remarks
Underweight (UW)
Didn’t participate in rally in energy stocks as most names
didn’t align to our framework; the holdings of City Gas
Energy UW
Distribution corrected sharply post break-out of Russia-
Ukraine war
Didn’t participate in rally as most names don’t align to our
Metals UW
framework. Exited tactical position early
Didn’t participate in rally as most names don’t align to our
Utilities UW
framework. Exited tactical position too early.
Stocks corrected or consolidated while delivering robust
performance, making valuations attractive with incessant
Financials OW Foreign Institutional Investor (FII) selling. We have been
adding in the fall in select names like Bajaj Finance, Bajaj
Finserv, HDFC Bank
Throughout the period and even after the exercise, we think it would not be prudent to extrapolate
the momentum and jump the sides. Our portfolio businesses, though impacted by raw material
inflation in near-term, each of them are strong enough to pass it on. Any mean-reversal in
commodity rally, which happened largely on supply constraints would be a bonus for these
businesses,
Data as on 31 Mar 2022. Source – MFIE; *Regular Plan and Growth Option of considered for returns. Past performance may
or may not sustain in future and should not be used as a basis for comparison with other investments. It is not possible to
invest directly in an index/Model. For scheme performance in SEBI prescribed format and performance of other schemes
managed by the same fund manager refer annexure. There is no assurance of any returns/capital protection/capital guarantee
to the investors in this/these scheme(s) of DSP Mutual Fund. The sector(s)/stock(s)/issuer(s) mentioned in this document do
not constitute any research report/recommendation of the same and the scheme may or may not have any future position in
these sector(s)/stock(s)/issuer(s).
Recap of rolling 1/3/5/10 years returns* of DSP Flexi cap fund

16.2

14.7 We continue to hold /

14.1
13.4 accumulate the
13.2 13.0
12.6 stocks which have
12.2 12.2
11.7 11.5 corrected and
11.4
fundamentals are
intact, avoiding
stocks which have
gone up just on
narratives
1 Year 3 Year 5 Year 10 Year
DSP Flexi cap Fund Flexi cap Category average
Nifty 500 TRI (Benchmark)
Data as on 31 Mar 2022. Source – MFIE; *Regular Plan and Growth Option of considered for returns. Past performance may or may not sustain in
future and should not be used as a basis for comparison with other investments. It is not possible to invest directly in an index/Model. For scheme
performance in SEBI prescribed format and performance of other schemes managed by the same fund manager refer annexure. There is no assurance
of any returns/capital protection/capital guarantee to the investors in this/these scheme(s) of DSP Mutual Fund.

Present portfolio positioning

DSP Flexi cap Overweight/(

Sector Benchmark
Fund Underweight)
Automobiles 10.1 4.6 5.5
Consumer Durables 8.8 4 4.8
Banking & Financial Service (BFSI) 33.7 29.4 4.3
Cement 4.8 2.2 2.6
Pharma & Healthcare 6.9 5.4 1.5 Fund is
FMCG 7.2 6.8 0.4 overweight on
Construction & Industrials 5.5 5.2 0.3 BFSI and
Chemical & Fertiliser 2.9 3 -0.1 Consumption
Telecom - 2.1 -2.1
IT 11.8 14.4 -2.6
Power - 3 -3
Metals - 3.9 -3.9
Oil & Gas 2.8 10.8 -8
Others 4.3 5.4 -1.1

Source: Bloomberg, Internal. The sector(s)/stock(s)/issuer(s) mentioned in this document do not constitute any research report/recommendation of the
same and the scheme may or may not have any future position in these sector(s)/stock(s)/issuer(s). Data as on 31 Mar 2022
Why are we bullish on BFSI* and consumption?

• The current economic scenario of rising rates and strong discretionary demand makes it
attractive to hold these sectors. In a rising rate scenario, it makes sense to buy the lenders
(banks) instead of borrowers (metals) and users of commodities( autos and discretionary)
than the makers (metals)

• Most of the quality names in BFSI space has underperformed the broader markets for
various non-fundamental reasons, particularly FII selling, while the balance sheets and
businesses have seen sharp improvement

Banks and Non Banking Financial After years of downward trend,

Corporations(NBFCs)’ earnings are making a employment and wages growth could
comeback boost consumption

1,750
35
1,500
30
1,250
25

1,000
20
%

750
5% 15
CAGR
500 10

250 5

0 0
FY15

FY21
FY06
FY07
FY08
FY09
FY10
FY11
FY12
FY13
FY14

FY16
FY17
FY18
FY19
FY20

FY22E
FY23E
FY24E

FY11
FY13
FY97
FY99
FY01
FY03
FY05
FY07
FY09

FY15
FY17
FY19
FY21

Coverage bank Profit After Tax (Rs. Bn) Compensation to employees- Organised sectors

Source: Morgan Stanley, Kotak Securities, DSPIM Source: CMIE, DSPIM

*BFSI- Banking, Financial Services and Insurance. The sector(s)/stock(s)/issuer(s) mentioned in this document do not constitute any research
report/recommendation of the same and the scheme may or may not have any future position in these sector(s)/stock(s)/issuer(s).
Chasing the commodities?

The global landscape is aligned for a downtick in commodity prices, with growth slowing in China and
other developed economies alike. With cycles getting shorter, getting swayed by market action is
uncalled for. It was a price inflation driven by a supply squeeze and supply is now resuming to
normalcy. Fundamentals are weak and can eventually reflect in prices.

Shale output is rising once again and this could substantially bring down the prices
120 10
110 9.5
100 9
90 8.5
80 8
70 7.5
60 7
50 6.5
40 6
30 5.5
20 5
Jan-17
May-15

May-16

May-17

May-18

May-19

May-21
May-20
Sep-15
Jan-16

Sep-16

Sep-17
Jan-18

Sep-18
Jan-19

Sep-19
Jan-20

Sep-20
Jan-21

Sep-21
Jan-22
Nov-15

Nov-16

Nov-17
Mar-18

Nov-18
Mar-19

Nov-19

Nov-20

Jul-21
Nov-21
Jul-15

Mar-16
Jul-16

Mar-17
Jul-17

Jul-18

Jul-19

Mar-20
Jul-20

Mar-21

Mar-22
US Shale Oil Production Brent Crude Oil $ Per Barrel (RHS)
Source: Bloomberg

Commodity cycles are now shorter and this one is likely to have matured now

Industrial metals (USD) 2x in

600 25 months
2.5x in
25 months
500 4x in
76 months 1.5x in
30 months
400

300 2x in
2x in 15 months 1.5x in 0.75x in
54 months 12 months 0.5x in 22 months
200 57 months
0.4x in
11 months
100 0.6x in 0.6x in 0.8x in
48 months 13 months
57 months
0
Apr-80 Apr-86 Apr-92 Apr-98 Apr-04 Apr-10 Apr-16 Apr-22
Source: Bloomberg; Edelweiss securities
Flows and Ownership – Foreign and domestic

Flows and ownership, no doubt, has lot of significance behind a stock or sector performance, but only
in near to medium term. Fundamentals would always have the last laugh.

Stock prices distorted in near-term due to heavy selling or buying presents a boon to an investor
with conviction of fundamentals. Additionally, such confidence is often more refined as the flows
and price moves makes one re-think the thesis many times over.

At present, we are experiencing the situation in financials. Foreign Institutional Investors (FIIs) have
sold aggressively into financials. Of the USD 18.5 bn outflows in FY22, USD 11.1 billion was in banks
and financial services. Of which, USD 9.1 bn has gone in the last 5 months itself. Reasons range
from rising US yields, Fed tightening to expensive valuations and beyond. We are taking the
advantage of the opportunity by adding to the positions like HDFC Bank and more !

Additionally, following chart highlight FII vs. domestic MF Equity holdings value over time. India’s
stable macro-economics and rising equity market participation should be able to better absorb the
vagaries of FII flows.

Anyways it makes enormous sense to enjoy the fruits of wealth creation happening through our own
consumption and tax payments

Mutual Funds (USD Bn) FII Equity (USD Bn)

29
25 23
19 20
18 18 18
16
14
11 11 11
9 8 8 9
7 7 7
5 4 5 4
3 3 3 3
1 0 0 0
-1 0 0 -1
-3 -4 -5
-7

-13 Biggest FII outflow of $15bn in just 3 months. Previous

largest outflow was $13bn in full calendar year -15

2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022 YTD

Source: Bloomberg; Data as on 31 Mar 2022

One step back, two steps forward

• Market always goes through volatility and cycles. From time to time, some sectors get
favoured while some fall on side-lines.
• What matters is, what we, as investors do and what our investee Cos’ managements
are doing. Managements of all our investee companies are focussed on doing right
things for the long-term growth and strengthening of their businesses.
• We try to identify ourselves with these managements and hold for long. As those
businesses bounce back, stocks prices tends to follow the suit and historically similar
patterns were observed in fund performance

Higher holding period; Higher probability of fund beating the benchmark*

1 year 3 year 5 year 10 year
% of time fund
65% 77% 94% 99%
outperformed
Average Alpha 5.2% 4.0% 3.8% 4.2%

Periods of underperformance* were always followed by outperformance over

following 5 years; Higher the underperformance, better forward recovery

% of times fund beating

Average forward 5 year benchmark on 5 year
1 year underperformances
alpha returns post 1 year
underperformance
0 to -2% 3.1% 100%
-2% to -5% 4.5% 100%
< -5% 5.7% 100%

Data as on 31 Mar 2022. Source – MFIE; *Regular Plan and Growth Option of considered for returns/performance. Past
performance may or may not sustain in future and should not be used as a basis for comparison with other investments. It is
not possible to invest directly in an index/Model. For scheme performance in SEBI prescribed format and performance of other
schemes managed by the same fund manager refer annexure. There is no assurance of any returns/capital protection/capital
guarantee to the investors in this/these scheme(s) of DSP Mutual Fund. The sector(s)/stock(s)/issuer(s) mentioned in this
document do not constitute any research report/recommendation of the same and the scheme may or may not have any future
position in these sector(s)/stock(s)/issuer(s).

As the fund completes 25 years, it is worth noting that the 36

investors who remained invested since day 1 have grown their
wealth by ~80 times
Annexure

Performance of Other Funds Managed by Atul Bhole & Abhishek Ghosh

Sr.
Period 1 Year 3 Years 5 Years
No.
Scheme
Scheme Benchmark Benchmark Scheme Benchmark
return
return (%) return (%) return (%) return (%) return (%)
(%)

DSP Dynamic
1 Asset Allocation 5.96 12.77 10.01 15.13 9.12 14.74
Fund

DSP Equity &

2 12.76 15.29 16.83 16.73 14.76 16.51
Bond Fund

Period for which fund's performance has been provided is as on Mar 31, 2022
Different plans shall have a different expense structure. The performance details provided herein are of regular-growth plan.
Past performance may or may not be sustained in future and should not be used as a basis for comparison with other investments

Performance in SEBI Prescribed format(IDCW option)

 Disclaimers
In this material DSP Investment Managers Private Limited (the AMC) has used information that is publicly available, including
information developed in-house. Information gathered and used in this material is believed to be from reliable sources. The AMC
however does not warrant the accuracy, reasonableness and / or completeness of any information. The data/statistics are given to
explain general market trends in the securities market, it should not be construed as any research report/research recommendation.
We have included statements / opinions / recommendations in this document, which contain words, or phrases such as “will”,
“expect”, “should”, “believe” and similar expressions or variations of such expressions that are “forward looking statements”. Actual
results may differ materially from those suggested by the forward looking statements due to risk or uncertainties associated with our
expectations with respect to, but not to, exposure to market risks, general economic and political conditions in India and other
countries globally, which have an impact on our services and / or investments, the monetary and interest policies of India, inflation,
deflation, unanticipated turbulence in interest rates, foreign exchange rates, equity prices or other rates or prices etc. The
sector(s)/stock(s)/issuer(s) mentioned in this presentation do not constitute any research report/recommendation of the same
and may or may not have any future position in these sector(s)/stock(s)/issuer(s). There is no guarantee of returns/income
generation in this scheme. The portfolio of the scheme is subject to changes within the provisions of the Scheme Information
document of the scheme. Please refer to the SID for investment pattern, strategy and risk factors. Past performance may or may not
sustain in future and should not be used as a basis for comparison with other investments. All figures and other data given in this
document are as on Mar 31, 2022 (unless otherwise specified) and the same may or may not be relevant in future and the same
should not be considered as solicitation/ recommendation/guarantee of future investments by the AMC or its affiliates. Investors are
advised to consult their own legal, tax and financial advisors to determine possible tax, legal and other financial implication or
consequence of subscribing to the units of DSP Mutual Fund. For scheme specific risk factors and more details, please read the
Scheme Information Document, Statement of Additional Information and Key Information Memorandum of respective Scheme
available on ISC of AMC and also available on www.dspim.com.

The strategy mentioned has been currently followed by the Scheme and the same may change in future depending on market
conditions and other factors. Large-caps are defined as top 100 stocks on market capitalization, mid-caps as 101-250 , small-caps as
251 and above.

Mutual Fund investments are subject to market risks, read all scheme related documents carefully.

Riskometer
Scheme Product Suitability
DSP Flexi Cap Fund Benchmark - Nifty 500 TRI

DSP Flexi Cap Fund This Open-ended equity

(Flexi Cap Fund - An scheme is suitable for
open-ended investors who are seeking*
dynamic equity Long-term capital
scheme investing growth
across large cap, mid Investment in equity and
cap, small cap equity-related securities to
stocks) form a diversified portfolio

*Investors should consult their financial advisors if in doubt about whether the Scheme is suitable for them.