Ca­nara Robeco Plan Prefers Mid­caps Over Small­caps

Will make 65-100% eq­uity al­lo­ca­tion to only mid-cap stocks from March 16 as val­u­a­tions rise

The Economic Times - - Smart -

Mum­bai: The sharp surge in mid and small-cap val­u­a­tions has made Ca­nara Robeco Mu­tual Fund change the fun­da­men­tal at­tribute of its mid and small-cap scheme.

In a no­tice sent out to unithold­ers, the fund house said the trustees have ap­proved a change in the fun­da­men­tal at­tribute to Ca­nara Robeco Emerg­ing Eq­ui­ties Fund, which has as­sets of ₹ 1,423 crore. The scheme, which has 65-100% eq­uity al­lo­ca­tion to mid and small-cap stocks, will have this al­lo­ca­tion to only mid-cap stocks from March 16. Ex­ist­ing unithold­ers have the op­tion to re­deem or switch out from the scheme without pay­ing any exit load, till then. “Many com­pa­nies in the mid and small-cap space, have seen their stock prices move up over the last three years. To con­tinue pick­ing stocks in the same space, and to align it with bench­mark mid­cap in­dex, this change was nec­es­sary,” says Ravi Gopalkr­ish­nan, head (eq­ui­ties), Ca­nara Robeco Mu­tual Fund.

Val­u­a­tions in the small and mid- cap space have surged sharply in the last three years. But, fund man­agers are more ner­vous about the val­u­a­tions in small­caps. The BSE’s small­cap in­dex is trad­ing at 53 times earn­ings against 36 times a year ago. As per data from Value Re­search, the Small Cap Fund cat­e­gory has given a re­turn of 40.43% in the last one year. As a re­sult,one of the best per­form­ing small-cap mu­tual fund, DSP Black­rock Mi­cro­cap,re­cently de­cided to stop fresh in­flows af­ter Fe­bru­ary 17. Last year, Mi­rae As­set Emerg­ing Bluechip too, stopped ac­cept­ing lump sum sub­scrip­tions and Moti­lal Oswal PMS had stopped fresh in­flows in one of its prod­ucts. Be­cause of surg­ing val­u­a­tions, fund man­agers are un­able to spot stocks in the mid and small-cap space.

The Mid­cap 50 in­dex, which traded at a PE of 15.82 times a cou­ple of years back now trades at PE of 34.28.

“Val­u­a­tions in the small-cap space are ex­tremely ex­or­bi­tant and are in bub­ble ter­ri­tory. In­vestors should cut ex­po­sure to this space and re­align their eq­uity port­fo­lios,” says Manoj Nag­pal, chief ex­ec­u­tive, Out­look Asia Cap­i­tal.

Re­tail in­vestors con­tinue to pour money into eq­uity mu­tual funds through the SIP route, a large part of which goes into mid and small­cap funds. Fund houses have been tak­ing var­i­ous steps to cau­tion in­vestors about these surg­ing val­u­a­tions.

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