SBI Funds’ Sabharwal bets on mid-caps

MUMBAI: Sandip Sabharwal, manager of the best-performing stock fund in India last year, is betting shares of mid-sized companies such as Praj Industries will help him retain his No.1 ranking. “Getting in early and riding your convictions is the key to investing in mid-cap companies,’’ Sabharwal, 33, said. He considers companies with a market valuation from Rs 200 to Rs 2,000 crore mid-sized.

“I select growth-oriented companies with a two- to three-year investment horizon.” Indian mid-cap stocks such as Praj Industries, a maker of sugar-milling equipment, and fashion chain Pantaloon Retail have had faster growth and lower valuations than larger companies, Sabharwal said. His Magnum Tax Gain Fund had a 159% return in the past year, outperforming 1,361 Indian stock funds ranked by Bloomberg.

The Rs 1,600 crore fund has returned 75% this year. BSE Mid-Cap Index, made up of 258 mid-sized companies, has risen 33% this year as economic growth boosted earnings. The Sensex has risen 18% this year.

 Morgan Stanley Capital International’s Emerging Markets index has climbed 12%, while the MSCI World index added 1.8%. The nation’s economy may grow 7% in the year that began April 1, the central bank said on July 26. That compares with the 6.9% estimate for growth in the year ended March 31, according to government estimates. That puts India on course to overtake South Korea as Asia’s 3rd-biggest economy.

“The economy is also showing healthy growth,” said Karnail Sangha, who helps manage $250 million of Indian stocks at Robeco Groep NV in Rotterdam. “The prospects for Indian equities are good.”

Shares of Praj have more than tripled this year to Rs 124.05, boosting the company’s market capitalisation to about $230 million. The Magnum Tax Gain Fund owns 1.34 million shares, its fourth-biggest holding and about 1.6% of the company’s outstanding shares. Sabharwal first started buying shares at Rs 55 in 2003.

“I liked the management’s vision,” he said, adding that he was attracted to the ethanol sideline as “alternate sources of energy gain in importance with rising crude prices.” Crude oil has jumped 48% this year.

Sabharwal bought shares of Pantaloon Retail at Rs 45 in 2000. He began trimming his holdings when the stock reached Rs 800. It currently trades around Rs 1,800.

KPIT Cummins Infosystems has risen almost five-fold to Rs 289.35 since Sabharwal started buying at Rs 60 each in 2002.

His investment in Balrampur Chini Mills has given him a six-fold return from his purchase price of Rs 13 each in 2003.

Sabharwal said he favours makers of capital goods, automobiles and cement as well as media and technology companies. He has been avoiding banking and energy stocks such as HPCL Indian Oil.
Adlabs Films has surged 198% to Rs 349.15 this year. Sabharwal bought shares at between Rs 100 and Rs 130 at the beginning of this year and the fund now owns 136,992 shares, or 0.5% of the company.  “The stock was in the doldrums since its initial offer in 2001,” he said. “We knew the entertainment industry was on the verge of a big boom.”

Sabharwal says his biggest miss was Bharti Tele-Ventures, “I liked the management’s focus and the market opportunity was huge, but I couldn’t see positive cash flows for a long time so that deterred me.”

Still, higher returns may lie ahead.