Bajaj Finserv’s new Small Cap Fund will apply an over-riding quality filter as it seeks opportunities across growth and value plays.
Nifty Small Cap index valuation at 32x seems on the higher side in the context of 2 yr earnings growth projections in the low 20s. Sorbh however sees many pockets of opportunity that have opened up in the recent correction, which offer him the prospect of building a portfolio with a lower PEG than the index.
Good confluence of positives from fiscal policy, monetary policy and promising onset of monsoons augurs well for a potential earnings upgrade cycle kicking in in the coming quarters.
While war in the Middle East has spiked oil prices, Sorbh says Iran is not a significant exporter of oil thanks to all the sanctions in place. If however the Strait of Hormuz does see some blockage as it is being feared, we could see supply disruptions in oil from Gulf countries.
Within small caps, Sorbh see many attractive stocks in chemicals, downstream industrials, consumer discretionary as well as staples.
He sees consumption taking over leadership from industrials as the market moves into its next leg up.
The fund will not restrict itself only to the Small Cap 500 basket – Sorbh sees his investment universe as 900 stocks including microcaps. Liquidity filter will be an important criterion when considering microcaps.