INSUBCONTINENT EXCLUSIVE:
Bears have taken a firm grip over small and mid-cap stocks
Toboot,the Nifty Smallcap 100 index has plunged nearly 27% this year after a nearly four year run-up in prices saw many small-cap stocks
Despite the slide, fund houses seem to be placing faith in small-cap funds again, launching new schemes or reopening older ones for fresh
Should investors take a cue and invest in such schemes
Back in comfort zoneFund managers believe the sharp correction in the segment has
actually thrown up interesting opportunities
Cooling valuations have tilted the risk reward scales in favour of certain stocks.
Fund houses have launched two new schemes in this space
with Invesco Small Cap and Tata Small Cap closing for subscription recently
Several existing small-cap funds that had placed restrictions on inflows due to higher valuations and fewer investment avenues, have
DSP BlackRock Small Cap (earlier DSP BlackRock Micro Cap), LT Emerging Businesses and SBI Small Cap are accepting investments again.
Of the
500-odd stocks with a market cap of ₹1,000-8,000 crore,as many as 230 stocks have tanked more than 30% since the turn of the year
Sixty stocks have lost more than 50% of their value
Taher Badshah, CIO-Equities, Invesco Mutual Fund, says, “The valuation premium of the small-cap segment over Nifty has shrunk from 70% a
year ago to around 15% now
At these valuations, rewards can be high in the small-cap space.” “The correction is steep enough to make quality smallcap names more
Fund managers now have enough opportunity to deploy money without having to dig deeper into small-cap territory,” says Vidya Bala, head,
Mutual Fund Research, FundsIndia.
Recently introduced rules that define the investible universe of stocks for different mutual fund
categories have also prodded fund houses to reopen subscriptions
Earlier, several smallcap schemes shopped stocks with market capitalisation of less than ₹4,000-5,000 crore,or those ranked beyond the top
400 in terms of market capitalisation, for their portfolio.
As per the new rules,small-cap funds can now pick stocks ranked beyond the top
250 in terms of market capitalisation for their core portfolio comprising 65% of the fund corpus.
The market cap of the 251st ranked stock
today stands at around ₹8,000 crore
This has widened the choice for small-cap mutual funds
Many companies earlier considered mid-caps now qualify as small-caps
In effect, smallcap fund managers can now create a more hygienic portfolio and not compromise on quality.
“Fund managers can invest in
more proven names across sectors and not be compelled to dabble in lower quality names,” said Badshah.
What should investors do Experts
say investors should not foray into this segment simply because funds are accepting investments again
The correction may have opened up opportunities but investors should be careful of their asset allocation
If you find that your portfolio is light in this segment, then use the correction as an opportunity to invest more.
While this segment is
prone to high volatility, sharp corrections provide an ideal opportunity to invest as then the risk-return profile is more in your favour
Planners say investors should only invest through the Systematic Investment Plan route
By helping you fetch higher number of units at lower prices, SIPs allow you to make the most of corrections, normalise the volatility and
deliver healthy returns over a period of time.
Those who had initiated SIPs in small-cap funds over the last 12-18 months would be staring
However, they should not be disheartened
Small and mid-cap mutual funds have proven to be highly rewarding for those who stayed invested over the long term.
Bala insists revised
definitions make small-cap funds a more compelling space to invest in
“Investors wanting to build long-term wealth should not only rely on a mid-cap fund
The wealth generating opportunity is higher with small-cap funds.” However, investors should stick with funds with a proven track record
Also, the allocation towards small-caps should not extend beyond 20% of the portfolio.
Long term profile remains healthy Smallcap segment
has rewarded investors in longer horizons
Fund AUM (Rs Crore)1-year returns (%)5-year returns (%)HDFC Small Cap4,9480.920.3SBI Small
Cap1,038-7.729.7Reliance Small Cap 6,812-8.430.7Franklin India Smaller Companies 6,726-13.723.8Kotak Small Cap 733-14.120.2ICICI Prudential
Smallcap 157-17.511.4DSP Small Cap 4,764-18.126.4Aditya Birla Sun Life Small Cap 2,051-21.120.7HSBC Small Cap Equity 5,03-21.623.1Sundaram
Small Cap 1,022-24.021.1Mid-cap Funds avg returns-11.421.1Large-cap funds avg returns-0.712.1Multi-cap funds avg returns -5.715.8
