June 2020

Invest in

We generally perceive ‘small’ as ordinary and fail to realize that while it may seem small, it has the potential to grow BIG.

What are Small Caps?

Large Cap

1st – 100th

Mid Cap101st – 250th

Small Cap251st onwards

Data as on 31st Dec 2019. Source: AMFI; BloombergPast performance may or may not be sustained in future

Rs. 10,00,000.00

Rs. 1,00,000.00

Rs. 10,000.00

Rs. 1,000.00

M Cap* - Market Capitalization

Market Cap - Average of NSE and BSE ( Rs. Cr.)

Large Cap stocks:M Cap > Rs. 26,290 Cr.No of Stocks: 100

Mid Cap stocks:M Cap between Rs. 8,243 Cr.and Rs. 26,290 Cr.No of Stocks: 150

Small Cap stocks:M Cap < Rs. 8,243 Cr.No of Stocks: 4,700+

430 companiesin Small CapSpace with M Cap > Rs. 1,000 Cr.But < Rs. 8,243 Cr.

Why Small Caps?Potential to grow exponentially

Because the Small Caps businesses:

Have potential to scale up due to presence in large organized sectors

Are present in the sectors where large and midcaps have limited presence

Are businesses in emerging industries

Are usually under-researched and under-owned by institutional investors

Why Small Caps?The Evolution…

Promoters’ commitment and entrepreneurial spirit• Improving Corporate Governance standards• Rising focus on share holder wealth maximization

Potential rerating of PE

Breeding ground for multibaggers

Right stock picking is the key to Small Cap investing

Returns generated by Top 500 Securities by Market capitalization

Total No. of Companies

No. of Companies

Top 100 101- 250 251 - 500

5x to 10x 7 0 2 5

1x to 5x 69 16 24 29

Between 50% to 100% Returns 45 12 16 17

Between 0% to 50% Returns 82 21 24 37

Between -50% to 0% Returns 105 27 31 47

Greater than -50% 77 12 19 46

NA* 115 12 34 69

Grand Total 500 100 150 250

Opportunities

Risks

*Data Not Available as these companies were not listed on exchanges at the start period of this analysis. Data as on 31st Dec 2019. Source: AMFI; BloombergPast performance may or may not be sustained in future

The above analysis is done on top 500 companies by market capitalization as on 31st Dec 2019. The Returns generated are for the period of 5 years ending 29th May 2020.

Higher concentration of Nifty 50 stocks in these industries

Insignificant or No presence of Nifty 50 stocks in these industries

Industry Allocation of Indices

More industry opportunities in Small Caps

Data as on 29th May 2020. Source: www.nseindia.com

No of Industries

14 | 18Top 5 Industries

81.2% | 59.3%Top 10 Industries

96.2% | 85.4%Nifty Small Cap 100 IndexNifty 50 Index

Index

Nifty 50 Index Nifty Small Cap 100 Index33

.3

14.7

14.3

13.4

5.5

3.6

3.3

2.9

2.7

2.4

2.2

0.6

0.6

0.4

0.0

0.0

0.0

0.0

17.8

11.4

1.8

13.8

2.6

0.3

6.4 9.

7

1.6 5.

3

1.0 3.

8 5.2

3.3 6.

6

2.0 5.

5

2.1

Nifty 50 Nifty Small Cap 100

Industries that can be better played through Small Cap stocks

Agriculture Expected to be least impacted and largely immune to the countrywide lockdown. The sector may experience a stable demand in near future.

HotelsIncreased Capacity utilization to support the earnings growth

LogisticsImplementation of GST and growth in e-Commerce

PackagingInnovative packaging is a key differentiator and companies in the sector have close, long term working relationships with their customers

Sugar and TeaFavorable government policies with regard to ethanol, which should lead to curbing earnings volatility in the business

ChemicalsValue added products and tighter pollution control norms in China providing opportunities to Indian companies

The industries referred above should not be construed as recommendation from Principal Asset Management and/or Principal Mutual Fund. The scheme may or may not have any present or future positions in these sectors. The views given above may change from time to time without any notice.

Why Small Caps?

Data as on 31st Dec 2019. Source: Capitaline. AMFI: as per latest industry classification list. Past performance may or may not be sustained in future

Over last 9 years

FIIs holdings grew by

37%MFs holdings grew by

72%

Rising Confidence of Institutional Investors in Indian Small Caps

8

9

10

11

12

13

14

15

CY2

010

CY2

011

CY2

012

CY2

013

CY2

014

CY2

015

CY2

016

CY2

017

CY2

018

CY2

019

12.68

9.23

3

4

5

6

7

8

9

CY2

010

CY2

011

CY2

012

CY2

013

CY2

014

CY2

015

CY2

016

CY2

017

CY2

018

CY2

019

4.67

8.06

8.84

7.81

7.35

6

7

8

9

10

11

Taper Tantrum

16.62

22.37

25.46

10

12

14

16

18

20

22

24

26Oil Price Correction

Market Corrections Recovery, Post Corrections

Why Small Caps Now?

Source: Bloomberg; Internal AnalysisPast performance may or may not be sustained in future

Staying put in Small Caps have been rewarding

Nifty Midcap 100 TRI Nifty Small Cap 100 TRINifty 50 TRI

Jan-13 Aug-13 Aug-13 Aug-15

Rebased the values of Nifty 50 TRI, Nifty Midcap 100 TRI and Nifty Smallcap 100 TRI to 10 as on 31st Jan 2013

Rebased the values of Nifty 50 TRI, Nifty Midcap 100 TRI and Nifty Smallcap 100 TRI to 10 as on 28th Aug 2013

For illustrative purposes only.

8.14

8.21

7.73

7

7.5

8

8.5

9

9.5

10

10.5

Chinese Economic Slowdown

Aug - 15 Feb - 16

16.31

19.26

20.95

10

12

14

16

18

20

22

24

Falling Yields

Market Corrections Recovery, Post Corrections

Why Small Caps Now?

Source: Bloomberg; Internal AnalysisPast performance may or may not be sustained in future

Staying put in Small Caps have been rewarding

Feb - 16 Jan - 17

Nifty Midcap 100 TRI Nifty Small Cap 100 TRINifty 50 TRI

Rebased the values of Nifty 50 TRI, Nifty Midcap 100 TRI and Nifty Smallcap 100 TRI to 10 as on 6th Aug 2015

Rebased the values of Nifty 50 TRI, Nifty Midcap 100 TRI and Nifty Smallcap 100 TRI to 10 as on 25th Feb 2016

For illustrative purposes only.

Market Corrections Recovery, Post Corrections

Why Small Caps Now?

The market movement depends on various factors and hence it cannot be assumed that the correction is over. Investors are requested to note that Small Cap performance is cyclical in nature. The above simulation is for illustration purpose only and should not be construed as a promise on returns and safeguard of capital. This should not be construed as a guarantee or forecasting of any returns.Source: Bloomberg; Internal AnalysisPast performance may or may not be sustained in future

What’s Next ?

Nifty Midcap 100 TRI Nifty Small Cap 100 TRINifty 50 TRI

2020Rebased the values of Nifty 50 TRI, Nifty Midcap 100 TRI and Nifty Smallcap 100 TRI to 10 as on 30th Aug 2018

8.36

6.79

5.33

4

5

6

7

8

9

10

11

12

Aug-18 May-20

Ongoing Period

For illustrative purposes only.

Small Caps have bounced back with greater intensity after corrections

CY2008 CY2009 CY2011 CY2012 CY2013 CY2014 CY2018 CY2019 ?110

-71

39

-33

57

-7 -28

Nifty Small Cap 100 TRI (%)

2020What’s Next

% R

etur

ns

The market movement depends on various factors and hence it cannot be assumed that the correction is over. Investors are requested to note that Small Cap performance is cyclical in nature. The above simulation is for illustration purpose only and should not be construed as a promise on returns and safeguard of capital. This should not be construed as a guarantee or forecasting of any returns.Source: Bloomberg; Internal AnalysisPast performance may or may not be sustained in future

-9

Why Principal Small Cap?

In-house Research Capabilities

Small Cap Investing Philosophy

Small Cap Portfolio Management

In-house Research Capabilities

7 Member strong equity fund management team

Over 1500 company annual interactions with companies in our universe• 500 meetings• 1000 one-on-one and company’s conference calls

Over 100 man years of investment team experience

Use of GRP (Principal's proprietary investment software)

Successfully invested in Small Cap space as part of our other portfolios

Small Cap Investing Philosophy

~200Our Small Cap Stocks Universe

Bottom Up Stocks Selection

Early Investors

Corporate Governance

GARP

Tactical Value picks

Number of Small Cap Stocks

~4750

Management Quality

Track Record and Growth Outlook

Small Cap Portfolio Management

Buy and Hold Strategy with typical horizon of 2-3 years

Tactical allocation to Large and Mid Caps for growth, liquidity and lower volatility

No active cash calls

Typically Single stock allocation not exceeding 5%

Portfolio Construction

Typically 3-4 annual

interactions with portfolio

companies

In-house earnings estimates with regular monitoring and revision

Continuous monitoring

of Corporate Governance

Strict check on portfolio liquidity

Meet every company before investing

Achievement of Target Price

Adverse developments in Corporate Governance

Consensus earnings catching up with our

estimates

Concerns with integrity

of financial statements

Adverse policies or

environment

Portfolio Review Sell Discipline

The investment strategy stated above may change from time to time without any notice and shall be in accordance with the strategy as mentioned in the Scheme Information Document of the scheme.

Equity Investment Process

Management Meetings

6 Pillar Investment Framework

In house Research

Third Party Research

Industry Experts

• Investment Objective and Strategy

• Risk Reward Framework• Portfolio Diversification• Regulatory and Internal

risk limits Performance attribution analysisBenchmark and peer group analysisRisk / Reward analysis

6 Pillars of our Investment Process

Portfolio Details (as on 31st May 2020)

Scrip Name % to NAV

Navin Fluorine International Ltd. 3.55

Neogen Chemicals Ltd. 3.02

Escorts Ltd. 2.99

Alkyl Amines Chemicals Ltd. 2.65

Galaxy Surfactants Ltd. 2.60

Rites Ltd. 2.59

Rallis India Ltd. 2.55

Fine Organic Industries Ltd. 2.46

Cosmo Films Ltd. 2.44

Bharti Airtel Ltd. 2.42

Top 10 Stocks

Market Cap Ranges will be determined as per prevailing SEBI/ AMFI guidelines where · Large Cap: 1st -100th company in terms of full market capitalization. · Mid Cap: 101st -250th company in terms of full market capitalization. · Small Cap: 251st company onwards in terms of full market capitalization.

Market cap Allocation (% to NAV)

Small Cap, 64.86

Large Cap, 12.17

Mid Cap, 11.85

Others, 1.58

Debt, 0.09

Cash & Other

Assets, 9.45

Top 10 Industries (% to NAV) Top Over and Underweights

Portfolio Details (as on 31st May 2020)

3.48%

6.02%

6.47%

6.52%

7.42%

8.10%

8.25%

8.69%

9.04%

15.09%

CONSTRUCTION

SERVICES

CEMENT & CEMENTPRODUCTS

AUTOMOBILE

IT

CONSUMER GOODS

FERTILISERS & PESTICIDES

INDUSTRIALMANUFACTURING

FINANCIAL SERVICES

CHEMICALS

-8.78%

-6.18%

-5.73%

-3.96%

-3.71%

2.21%

3.05%

3.23%

3.94%

8.52%

FINANCIAL SERVICES

CONSTRUCTION

CONSUMER GOODS

IT

PHARMA

SERVICES

FERTILISERS & PESTICIDES

INDUSTRIAL MANUFACTURING

AUTOMOBILE

CHEMICALS

Fund Details

Mr. Ravi Gopalakrishnan has over 29 years ofexperience in research and asset managementbusiness. During the course of his career, he hasworked across many Asset ManagementCompanies, including Canara Robeco AMC,Pramerica AMC, and Sun F&C AMC. He has managedseveral funds across Large Cap, Multi-cap and Midcap strategies. He has a very strong researchbackground and has sound knowledge of the fundmanagement business. He is a M.S.Finance(Investments) & holds a M.B.A.

Mr. Siddarth Mohta has been part of PrincipalAsset Management Pvt. Ltd. (formerly known asPrincipal PNB Asset Management Company Pvt.Ltd.) since 2009. He has over 16 years ofexperience in Finance and Stock Markets. Prior tojoining Principal, he worked as an Analyst inAdventity Global Services, ICRA ManagementConsulting Services, and Polaris Software Ltd.He is a B.Com and a Post Graduate Diploma inManagement in Finance and Certified FinancialRisk Management.

Fund Manager Associate Fund Manager

• New Investor – Rs.5,000/- for both Dividend and Growth Option and any amount thereafter under each Plan/Option.

• Systematic Investment Plan: Minimum twelve installments of Rs. 500/- each.

• Systematic Transfer Plan: Minimum Six installments of Rs. 1,000/- each.

• Regular Withdrawal Plan: Minimum Six installments of Rs. 500/- each.

Min Application Amount

Nifty Small cap 100 index

Benchmark

Exit Load• If redeemed/ switched on or before 365 days

from the date of allotment: Nil for redemption/ switch out of units

upto 24% of the units allotted (the limit) 1% on redemption in excess of 24% of the

limit stated above- Redemption of units would be done on First in First out Basis (FIFO)

• Nil thereafter. (w.e.f. March 31, 2020)

An open ended equity scheme investing in small cap stocks.

To generate long term capital appreciation by predominantly investing in equity and equity related instruments of Small Cap companies.However, there is no assurance or guarantee that the investment objective of the Scheme will be achieved.

Nature of Scheme Investment ObjectiveInvestment OptionsGrowth & Dividend

Direct & Regular

Investment Plan

DISCLAIMER: The investment strategy stated above may change from time to time without any notice and shall be in accordance with the strategyas mentioned in the Scheme Information Document of the scheme. The views contained herein are not to be taken as an advice or recommendationto buy or sell any investment or interest thereto. Reliance upon information in this material is at the sole discretion of the reader. This materialshould not be relied upon by you in evaluating the merits of investing in any securities or products. Diversification does not guarantee investmentreturns and does not eliminate the risk of loss. It should be noted that the value of investments and the income from them may fluctuate inaccordance with market conditions and taxation agreements and investors may not get back the full amount invested. Past performance may ormay not be sustained in future. The views and strategies described may not be suitable for all investors. Furthermore, whilst it is the intention toachieve the investment objective of the investment product(s), there can be no assurance that those objectives will be met. Investors are advised toconsult their Investment advisors for determining their risk appetite and Tax Advisor before taking any investment decision.

Mutual Fund investments are subject to market risks, read all scheme related documents carefully.

For Distributors only and not for further circulation