About
Set up in December 1996, DSP Investment Managers Private Limited is the asset management company of DSP Mutual Fund.
The AMC shareholders are DSP ADIKO Holdings Private Limited (54%), DSP HMK Holdings Private Limited (34%) with the balance 12% held by Ms. Aditi Kothari Desai and Ms. Shuchi Kothari in equal proportion. The DSP Group, headed by Hemendra Kothari, is one of the oldest and most respected financial services firms in India. DSP group is a 152-year old financial company, starting the stock broking business in the 1960s. The group has had associations with Merrill Lynch, and American investing and wealth management wing of the Bank of America, Dresdner Bank.
DSP had formed a joint venture with the largest global asset management firm, BlackRock, through its JV with Merrill Lynch since 1996 and then acquired its partner’s stake –
As on 30th April 2022 its aum stands at Rs 1,10,019.54 crore i.e. (~ $ 14.29 billion @77INR per USD) which is spread across more than 42 funds in all asset classes.
Key details from financial statements for FY 21-22 –
| Total income (INR crores) | Total Expenses (INR crores) | EBIT (INR crores) | EBIT Margin | Net Profit (INR crores) | Total Income (USD millions) | Total Expenses (USD millions) | Net Profit (USD millions) |
| 690.21 | 276.32 | 413.89 | 60% | 413.89 | 92.03 | 36.84 | 55.19 |
The website mentions the following about the firm –
Singular focus on Asset Management
We have no alternative business interests. This means that we are single-mindedly committed to doing well for our investors and for ourselves.
Professional management, family ownership
We have a unique business model of family ownership and professional management. Globally, such companies deliver longevity and durable results to investors, as their business models allow for long-term thinking and decision-making. We want to make the most of it and be valuable to our investors.
Setting the right expectations- for ourselves and our investors’
Gathering AUM is not our primary focus. Delivering consistent performance while beating benchmarks and serving the right products to the right people with the right purpose, is our primary focus. Our core skill sets come from a curious understanding of market cycles, risks, and sound fundamental investing principles. We have consciously and continuously invested in building these capabilities and will continue to do so.
Highest confidence in our capabilities and our own skin in the game
Not just our shareholder wealth, but even our employee wealth is invested in our funds. All of us, as a rule, invest only in schemes of DSPMF. This skin-in-the-game philosophy gives investors more confidence as their hard-earned money is also invested where their asset manager invests. In other words, we treat our investors’ money as if it were our own.
An unwavering belief in ‘scientific’ asset management run with utmost rigour –
We often say that DSP stands for discipline, science, and processes. We believe our analytical rigour, which powers our framework-based thinking and risk management, will help us deliver good long-term investment outcomes for investors.
InvestForGood: A philosophy built on our belief in integrity
We want our investor community to “do good” for the world and not just focus on building a better future for themselves. #InvestForGood is not just about investing for good results and outcomes, but also investing for really long periods of time, focusing on doing only what is right for you, our investors. This strong belief in ethics and integrity powers our philosophy and aims to make a real difference in people’s lives.
A vibrant environment, the ‘DSP’ culture
We aim to attract and nurture smart, and ambitious professionals from all kinds of backgrounds and domains as long as they share our goal of building better, more responsible investing experiences. Our people always look to stretch individually and thrive in teams equally well, to collaboratively do their best work.
Key staff
Kalpen Parekh is the President of DSP Investment Managers Pvt. Ltd. and a member of the Executive Committee. Kalpen has over 19 years of experience in sales across client segments, distribution and marketing. He was previously Managing Director and Head of Sales & Marketing at IDFC Mutual Fund. He has also served in Birla Sun Life Asset Management Company Limited and ICICI Prudential Asset Management Company Limited after beginning his career with L&T Finance Ltd.Kalpen holds a Master’s Degree in Management Studies in Finance from the Narsee Monjee Institute of Management Studies, as well as a Bachelor’s Degree in Chemical Engineering from Bharati Vidyapeeth, Pune.
Vinit Sambre is Head – Equities at DSP Investment Managers. He has been managing the DSP Micro Cap Fund since June 2010 and is also the Fund Manager for the DSP Small and Mid Cap Fund. Vinit specializes in the small and mid-cap space and has over 20 years of relevant work experience. Vinit joined DSPIM in July 2007, as Portfolio Analyst for the firm’s Portfolio Management Services (PMS) division, which manages discretionary accounts and provides advisory services to institutional clients. As a research analyst, his focus was on sectors like Pharmaceuticals, Power Utilities, Chemicals, Fertilizers and Textiles.Previously, he was with DSP Merrill Lynch as a part of its Global Private Client business. He spent 20 months at DSP Merrill Lynch as Equity Strategist. Prior to DSP Merrill Lynch, he was employed with IL&FS Investsmart Limited as an Equity Analyst in their PMS division. He has also worked with UTI Investment Advisory Services as Equity Analyst for the offshore fund – India Growth Fund. Vinit is a Chartered Accountant from Institute of Chartered Accountant of India.
Sandeep Yadav is the Head of Fixed Income and has a total work experience of almost 20 years. He joined DSP Investment Managers in September 2021 as senior vice president fixed income investments. Sandeep has previously worked for Yes Bank, and had headed the derivatives structuring, fixed income trading and primary dealership. Prior to that Sandeep had worked in technology space in Cognizant Technologies, Hughes Services and Mahindra British Telecom. He is a computer engineer (Pune University) and PGDBM (IIM Bangalore). Sandeep is also a CFA chartered holder.
Aparna Karnik is Senior Vice President and Head of Risk & Quantitative Analysis. In this capacity, she leads the team that supports and advises on all aspects related to investment risk management.Aparna has 17 years of experience in investment, credit and operations risk management. Prior to joining DSP, she worked with CRISIL Ratings in their Structured Finance Division, Large Corporates Group.She holds a Masters in Management Studies degree from Jamnalal Bajaj Institute of Management Studies.
Investment Philosophy (for firm)
The website doesn’t state an investment philosophy for the firm but ‘investment frameworks’ for senior fund managers including Vinit Sambre, Atul Bhole, Rohit Singhania etc. It also mentioned being scientific in their approach along with framework-based thinking and risk-management which will help them deliver good long-term investment outcomes for investors. Updated May 2022
The following is from Vinit Sambre’s framework since he is Head of Equities but note it applies to mid and small cap –
Investment success lies in the ability to identify sustainable and durable businesses run by able managers with ability to generate superior ROEs (or ROCEs) over long periods of time. The success really lies in the ability to identify businesses which could probably generate superior ROCEs on a sustainable basis, the element of predictability, and the better one is at predicting the higher the chances of success.
DSP’s Style for the Small cap and Mid-cap Arena
Small cap and Mid-cap stocks by nature have the potential to grow at exponential rates but are also highly volatile. Mid and small cap stocks are more susceptible to economic cycles than their large cap counterparts – stocks in these categories are less likely to weather an economic downturn than large, well-established businesses. They are generally under researched and under owned. These companies require a long-term perspective as value creation takes time. The small cap category demands intensive research to identify stocks and constant vigilance throughout the journey to 1) build conviction on the thesis and the value proposition, 2) increase exposure or even eliminate, if required.
To create long term wealth for their investors in these categories they follow a simple investment philosophy of buying and holding companies which would potentially create value over time and eliminate companies which would detract value.
They look at three broad parameters:
- Business model : They invest in simple businesses (focused mono-line businesses or few complimentary businesses) with good predictability and high growth potential
They look at the following factors while researching the investee companies:
1. What are the business’s competitive advantages? (Is it a simple and niche business? Has it maintained market dominance and remained ahead of its competition? Is its market position sustainable? Is it an innovator?)
2. Is the business in a large and high growth sector? Is the company well positioned to capture growth (Maintain and grow market share)? Can the company scale and grow and in what time frame?
3. Does the business generate or have the potential to generate positive and predictable cash flows and superior ROE? How capital intensive is the business (both fixed and working capital)?
4. Is the business at the cusp of a turnaround, where ROEs / other financial metrics are slated to move up in the foreseeable future?
- Credible and capable management team: Credibility is a matter of trust and ethics. Capability is the ability to drive business growth. These are subjective factors that go beyond traditional parameters such as vintage, qualifications, etc. Individual judgment plays a key role in evaluating management. For small cap companies, assessment of management is difficult, as the information availability is limited. However, management review is crucial as they are often the force driving growth. Some of the key parameters / attributes which they assess are:
- Passion and ownership
- Past track record
- Prudent capital allocation
- Valuation: Finally, they combine our assessment of the strength of the business and quality of the management team to determine a reasonable valuation for their investee companies. They do not look at valuations in isolation; but in conjunction with the growth, return ratios, management quality, earnings stability, cyclicality, optional drivers, etc. The higher the consistency in growth and ROE, the higher multiple a business can command.
Media
MMI interview with Vinit Sambre, 2022
Summary – “We are enthusiastic about our work, but there is a component called ‘risk’ that we must keep in mind”as said by Vinit Sambre. It entails not only stock selection but also stock elimination as exclaimed by Vinit Sambre. The house philosophy for them is a collective experience, which they use and which is around 300 companies and consists of 1 research team consisting of 10 analysts. The main thing is transparency, which they give to the investors, and it is their right to know how their hard-earned money will get invested today. They have the right to see what type of fund manager is investing the money for the long term. In the midcap fund, we have around 50–55 stocks; in the top 100 stocks, 13 stocks; and in the focus fund, 25 stocks. In the midcap fund, we have around 50–55 stocks; in the top 100 stocks, 13 stocks; and in the focus fund, 25 stocks. They go by PV and EV/EBITA to determine comfort and also do sensitivity analysis to get range and valuation.
Vinit Sambre in interview with The Economic Times- 18th Feb 2022
Summary- They use the bottom-up stock selection. They pick companies which have high-quality management, decent cash flows, strong ROCE, and those that have a competitive advantage. We follow a buy-and-hold strategy. We also look at some cyclical businesses which are at the cusp of a turnaround, where ROCEs are slated to move up in the foreseeable future. India has many enterprising people with aspirations, with immense potential to grow. Micro-cap allows investors to participate in this growth and benefit from the same. As an emerging economy, India has the potential to keep growing at a high rate for a sustainable period of time if we have the right leadership. We believe we have all these ingredients now and, hence, we remain positive in this category. There is leeway to have small/mid-cap names to the extent of 35 per cent. Companies that outgrow the category and become small-cap or mid-cap may continue to be part of the fund as long as the mandatory requirement is not breached.The focus is to identify strong businesses which we believe have the potential to outperform over the medium- to long term. We focus on management quality, ROCE, and cash flows, among other parameters.
According to Vinit Sambre, DSP Mutual Fund Platform, adhering to our core philosophies aided the turnaround of most funds. Date- Dec 05, 2019
Link- https://economictimes.indiatimes.com/mf/analysis/following-our-core-philosophies-helped-the-turnaround-of-most-funds-says-vinit-sambre-dsp-mutual-fund/articleshow/72379105.cms?from=mdr
Summary: The performance is the outcome of following our core investment philosophy while selecting companies across different sectors. We look for companies that are category leaders, have the potential to outgrow overall market growth, run efficiently in terms of ROE (we look for long-term ROE of upwards of 15–16%), and are managed by a very capable and competent management team with no corporate governance issues.
After identifying such companies, we follow a buy-and-hold approach. Our portfolio turnover has been pretty low, at around 30%. It means the average holding period for our set of companies is 3–4 years. Principally, we would rather invest in the business and gain from its growth over the long term than chase prices every quarter. That, we believe, is the key differentiator that has allowed us to create the desired outcomes for our investors.
Small fund with big gains (interview of Vinit Sambre) with Outlook Money, March 2016 https://www.outlookindia.com/outlookmoney/mutual-funds/small-fund-with-big-gains-521
What is your stock picking philosophy for the fund?
We use the bottom up stock selection. We pick companies which have high quality management, decent cash flows, strong ROCE, and those that have a competitive advantage. We follow a buy-and hold strategy. We also look at some cyclical businesses which are at the cusp of a turnaround, where ROCEs are slated to move up in the foreseeable future.
What has been the stock picking lesson which you have learned?
Micro-cap is definitely an interesting space to be in. India has many enterprising people with aspiration, with immense potential to grow. Micro-cap allows investors to participate in this growth and benefit from the same. As an emerging economy, India has the potential to keep growing at a high rate for a sustainable period of time if we have the right leadership. We believe we have all these ingredients now and, hence, we remain positive on this category. As far as the depth of the market for micro-cap is concerned, it is a function of economic growth which we believe is on the cusp of a long-term improving trend.
What do you do with stocks in your portfolio that grow from micro-cap?
DSPBR Micro Cap Fund has to mandatorily invest 65 per cent of its assets in micro-cap companies at all times. There is leeway to have small/mid-cap names to the extent of 35 per cent. Companies that outgrow the category and become small-cap or mid-cap may continue to be part of the fund as long as the mandatory requirement is not breached.
How do you narrow down stocks that enter the portfolio?
The focus is to identify strong businesses which we believe has the potential to outperform over the medium- to long-term. We focus on management quality, ROCE, cash flows, among other parameters. Also, it is very important to eliminate ideas which do not meet some of these requirements.
Managing Mutual Funds is like playing a test match with t20 rules. (The interview of Kalpen Parekh with Economic Times)
The link to the interview: https://economictimes.indiatimes.com/markets/expert-view/managing-mutual-funds-is-like-playing-test-match-with-t20-umpiring-kalpen-parekh/articleshow/80665756.cms
One of the main take-aways of this interview is when he says Our challenge is to get the right balance between surviving for the long term, delivering more consistently in the medium term and ignoring the noise of the short term.
When asked, What are the problems faced by fund managers during a bull market? he replies, the challenge we face as an industry is that if you really have to generate long-term wealth for our investors, to use cricket parlance, it has to be a test match approach of patience. However, the score card, the measurement and umpiring is a T20 approach. The real value of our investments is not about the returns today, in the last one year or next one year, but the return over the next 20 years. With most asset classes like gold, real estate and bonds, investor time horizons run in decades while in equity funds, ironically, it’s just a few years. Achieving a good balance of time horizon between investors’ holding period and ours is a challenge.
He was asked that all fund managers advise not to time the market, but end up doing it themselves, why do they not follow what they preach?
He says, In my view, timing the market is important only if you have a framework to time it around and understand cycles, valuations and peculiarity of some of the steady state businesses. Ideally you avoid timing there. On the other hand, we respect timing in companies or sectors which are inherently cyclical and volatile. In such themes, we prefer scaling funds at the bottom of the sector cycle. These are some trends that will need to be timed properly and that is our job. As fund managers, we need to do a bit of sector and cycle timings. If margins are likely to peak or bottom out, be conscious about it so that we are able to articulate that in a simple way and add a lot of value to different investors.
F
MMI interview with Kalpen Parekh, 2022
Summary: The main advantage of a family-owned business over a conglomerate is that it can focus more on long-term investing. They have a six-investment framework and a broad style in the product map on the website. DSP alpha is a meaningful dominant active share, respecting some amount of diversity, and DSP lite is a low-cost beta stock. They all start with measuring our investments and rating alpha on a scale of 4, with 4 being the highest and 1 being the lowest. They are working to strengthen and scale their platform. They are more focused on growth and market share, fund performance, and having the right product at the right time. Almost 50% of the industry’s assets are fixed income, and they all have 5 to 15 basis points. Old money is still giving a healthy margin, but new money is coming in at a lower margin. Whenever the market falls by 10%, these hybrid funds fall by 2-4%. With time, these will evolve, and the approach will also change. From a record-keeping and hypothesis-testing standpoint, they are working on a scientific tool that will bring science to decision-making and provide evidence-based validation of every decision they make, right or wrong.
DSP Group part ways with Black Rock AMC Platform- cnbctv18 Date- May 08, 2018 Link- https://www.cnbctv18.com/economy/dsp-group-part-ways-with-blackrock-amc-53409.htm
Summary- DSP Group said it would buy out Black Rock’s 40% stake in DSP Black Rock Investment Managers.
Name- DSP group plans IPO to monetize stake in AMC, may rope in new partner
Platform- business-standard Date- August 2, 2018 Link- https://www.business-standard.com/article/markets/dsp-group-plans-ipo-to-monetise-stake-in-amc-may-rope-in-new-partner-118080101638_1.html
Summary- DSP Black Rock is one of the top 10 fund houses in the country and recently announced the exit of its joint venture partner Black Rock in the AMC. Under an agreement announced in May, the DSP Group will buy the 40 per cent stake held by Black Rock, subject to regulatory approvals.
Prepared by Taniya Nagpal, June 2020, Meet Joshi, June 2021, Rahul Sharma, May 2022, Sattik Mukherjee, Dec 2022
Authors
Taniya Nagpal,
Meet Joshi
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