DSP Merrill Equity: Pare exposures

Recommendation: Pare exposures

S. Vaidya Nathan

INVESTORS in DSP Merrill Lynch Equity Fund could pare exposures using any firm trends in the secondary market. At the top end of the portfolio, the fund has now focussed on frontline stocks with good liquidity. But close to 8 per cent of its net assets are in stocks where the scope for gains may be limited and even liquidation may be a problem. These are SIP Technologies, Magnasound, Jupiter BioSciences and Pantaloon Retail. This could affect the performance of the fund.

The overall track record since launch, with a compounded annual return of seven per cent and the under-performance in the last year, does not inspire much confidence. In this backdrop, it is doubtful to what extent the overall portfolio could cover up for some of the problem exposures.

DSP Merrill Lynch Equity is essentially a diversified fund. As such, investors could contemplate a switch to other such funds with a better track record and ones without any sizeable problem exposures. This would ensure that investors reap the complete benefit of any rally in stock prices.

Returns from the DSP Merrill Equity Fund could be weighed down by the problem exposures which may not be easy to get rid of. The likes of Zurich India Equity, Pioneer ITI Bluechip and Templeton India Growth Fund are possible options.

Suitability: The fund is appropriate only for investors with a fairly high appetite for risk. This is despite the fact that the portfolio is now in large-cap frontline stocks. The fund's strategy has been changing too often for comfort, both in terms of sectors and stocks. For much of 1999 and 2000, the fund tried to ride the momentum stocks and has nothing to show by way of returns for the enhanced risk. The track record is not one that would suggest confidence about a particular investment approach.

Portfolio overview: The fund now has all the top stocks that count in its portfolio. It has moved into healthcare and FMCG in a big way with a sharp stepping up of exposures to Hindustan Lever. The FMCG sector tops the sectoral holdings at 14 per cent.

The exposure in the information technology sector is now just 10 per cent while in March 2000 it was close to 61 per cent. The shift towards healthcare and pharma stocks has helped the fund avoid steep declines in the last two quarters.

The fairly heavy exposure to the economically sensitive stocks, such as Tata Power, BHEL, Larsen and Toubro and Grasim, among others, could carry some downside potential in the near term. The fund has taken the view that there could be some downside risks to equities in the near term. Nonetheless it has now more or less remained fully invested with just 3.6 per cent of its assets in cash/cash equivalents.

Fund facts: Launched in April 1997 as an open-end growth fund, the fund offers entry at a maximum load of 2 per cent to NAV and there is no exit load. The fund manager is Mr Anup Maheshwari. The minimum amount is Rs 5,000.