Fall in mid/small-caps may see a shift in MF flows
Small and midcap schemes are likely to see lower inflows in March after the recent correction in the space and the regulatory diktat to mutual funds to conduct stress tests on such schemes, according to industry officials.
About twofifths of equity flows in the past two years have gone to such schemes, say marketwatchers.
Inflows into small cap funds in the first 10 months of FY24 stood at ₹37,360 crore, 69 per cent higher than the amount collected in FY23.
Flows in midcap schemes this fiscal have also surpassed the ₹20,205 crore garnered the previous year.
Distributors and advisors are now asking clients to park a larger share of their incremental money in flexi, large, large and midcap, and multicap schemes instead of small/midcap funds.
FROTH BUILD-UP
“Investors have been chasing returns,” said Swarup Mohanty, Chief Executive of Mirae Asset Mutual Fund. “We have seen a buildup of froth in the small and midcap space and some of the incremental flows could move to other equity categories and even hybrid funds.”
The Nifty Midcap 100 and Nifty Smallcap 100 have slid 3.7 per cent and 6.6 per cent, respectively, in the last one month.
Market observers expect largecaps to relatively outperform the broader market in the months ahead.
ADVANTAGE LARGE-CAPS
B Gopkumar, Chief Executive of Axis Mutual Fund, said investors are now preferring multicap funds over flexicaps as the former invest an equal portion in small, mid and largecap stocks whereas flexicaps lean towards largecaps.
“Multicap funds have built a threeyear track record and may see greater investor interest going forward.”
According to Amol Joshi, a distributor, there won’t be a substantial reallocation from existing funds resulting in shifting of money from small/midcap schemes to other equity categories. Fresh funds, however, may find their way into ‘large and midcap’, flexicap or multicap schemes, driven more by intermediaries rather than investors themselves.
“Investors convinced about the rally in mid and smallcap schemes may gravitate towards multicap schemes. Lumpsums could go to PMS schemes, especially for investors who have a lot of conviction in mid and smallcaps and a higher risk appetite,” said Joshi.
HSBC Global Research prefers largecaps but sees opportunities in the current midcap selloff, too.
The research house remains positive on the broader market and ruled out any deep selloff in midcaps from current levels.
It said that midcap valuations had come down to the fiveyear mean and that the midcap market breadth had declined to 73 per cent from 90 per cent and above at the beginning of the year (60 per cent being the normal cycle average breadth), signalling some potential but limited downside.
“After the recent correction, many quality companies have approached their key support. Investors should focus on accumulating quality stocks from a longterm perspective,” ICICI Securities said in a recent note.