DSP Flexi Cap Fund Growth INF740K01037

DSP Flexi Cap was under the management of Atul Bhole from May 2016 until his exit in December 2023. We held a positive view of Bhole, recognizing his consistent application of a sound process paired with effective execution skills. Following Bhole’s departure, the fund was temporarily managed by Rohit Singhania, co-head of equities, until March 2024, after which Bhavin Gandhi took over as the current manager. Gandhi has relatively less experience as a fund manager. Additionally, frequent changes within DSPIM's equity team since 2017 have affected our confidence. Finally, while Gandhi's process framework for this fund is elaborate, his execution of plying the framework consistently remains to be seen. Consequently, we are downgrading the fund’s People rating to Below Average from Above Average, and the Process rating to Average from Above Average.

Gandhi joined DSP in February 2021 and has an overall industry experience of around 19 years. Before joining DSP, he served as a research analyst at Batlilvala and Karani Securities and Crisil tracking multiple sectors including oil and gas, logistics, paper, and housing finance companies (largely in the mid- and small-cap space). His previous roles at DSP include fund manager for AIF – High Conviction Fund series 2 from April 2022 to December 2023. While Gandhi has good industry experience, he needs more time and seasoning as a fund manager.

The investment team has witnessed significant changes since 2017, with senior managers like S. Naganath, Anup Maheshwari, Harish Zaveri, and Gopal Agrawal and very recently Bhole exiting the fund house within a short span, which has been concerning. The DSP equity team is led by Vinit Sambre, who has 19 years of experience. He is the dedicated mid- and small-cap specialist at the fund house. Singhania (co-head equities) assists him, having close to two decades of experience. The team consists of 14 members, including four fund managers and 10 analysts. The analysts, on average, bring 10 years of experience, which is reasonable.

Gandhi's approach to portfolio management is comprehensive and shares many similarities with the framework used by former manager Bhole, which yielded favorable results over time. Like Bhole, Gandhi focuses on selecting high-quality businesses with strong management, robust earnings growth, and a price-value gap that can be exploited. His detailed framework categorizes businesses based on their characteristics and assesses them according to their position in the business cycle. The portfolio is constructed using a bottom-up stock-picking approach aligned with specific themes where Gandhi is optimistic.

Given the parallels to Bhole's growth-oriented strategy, Gandhi has not felt the need to significantly overhaul the portfolio. Historically, the portfolio has maintained a 40%-45% allocation to mid and small-cap stocks, a trend that is expected to continue. However, Gandhi does not strictly adhere to a market capitalization allocation range when selecting stocks; instead, he focuses on thematic opportunities and the potential within those themes. That said, the portfolio will have at least 50% allocation in large-cap names. Although the portfolio is undergoing a slight transition, most major changes have already been implemented, with any remaining adjustments to be made gradually as market conditions permit. Under Gandhi's leadership, the process framework needs to be assessed across a full market cycle. Therefore, we are currently downgrading the Process rating to Average from Above Average.

While Gandhi's detailed and thorough process framework is reassuring, our confidence in his ability remains cautious. We await evidence of successful execution within his framework and greater stability within the equity team before fully endorsing his capability.