DSP Mutual Fund's Kalpen Parekh Lists Key Sectoral Bets

DSP Mutual Fund has invested in banks, select NBFCs, healthcare, and auto sector.

“In the recent times, policymaking in India has been reasonably stable. Our inflation is much lesser than the rest of the world. I do see a fairly stable environment—both in terms of inflation and interest rate set-up,” Kalpen Parekh, managing director and chief executive officer of DSP Mutual Fund, told BQ Prime.

The “largest weight” in the fund's equity portfolios and sectoral investments is allocated to “top banks, select non-banking financial companies”. This decision is based on the improved balance sheets of banks over the past 3-4 years, changing credit growth trends, and the anticipation of double-digit credit growth.

“Net interest margins of these banks also are at reasonably high levels, so the health of the banking sectors are good,” he said.

Another sector that DSP Mutual Fund has increased its exposure to is healthcare. In the past six months, the fund has raised the weightage to this sector in its portfolio as compared with the benchmarks.

“Healthcare sector almost peaked in 2015, in terms of earnings growth and valuation,” he said. This was followed by a decline over the next four years. While the sector received a short-term boost during the Covid-19 pandemic, it has since “underperformed” as compared with other sectors. “Therefore, it is now at reasonable valuations,” he said.

According to Parekh, the profitability of certain healthcare companies, particularly those with “large exposure to the U.S. market”, has been impacted in recent years. However, he is now seeing some bottoming in the U.S. business, “which is not priced in the valuation”.

DSP Mutual Fund has also gradually increased weightage of the auto sector over the past year. Many auto companies faced challenges such as low volume growth during the pandemic and rising metal prices, coupled with semiconductor shortages, he said.

“Some of these big companies are dominant with strong balance sheet even after a bad cycle, so we expect volumes and margin to improve from hereon for certain auto companies,” said Parekh.