Small-caps still find favour: Amfi data dismisses fears of trend reversal

In March, the financial markets took investors on a rollercoaster ride, with smallcap funds witnessing a net outflow of ₹94.2 crore, breaking a streak spanning two-and-half years, while large-caps enjoyed an influx of ₹2,127 crore, triggering chatter about a potential trend shift.

However, April witnessed a refreshing change with smallcap funds staging a remarkable comeback, with ₹2,208 crore in net inflows, putting worries of a reversal to rest. In fact even large-caps joined the party to record inflows of ₹349 crore.

“Both small-cap and mid-cap schemes saw notable inflows, reflecting a distinct attraction toward Smid schemes among investors,” Abhilash Pagaria, head, Nuvama Alternative and Quantitative Research, said.

Nonetheless, elevated valuations has been a challenge in replicating returns of previous years underscoring the importance of maintaining a 3-5 year investment horizon to mitigate potential setback, he said.

Senior fund manager at Tata Asset Management, Chandraprakash Padiyar, also echoed similar sentiments, expressing doubts about sustaining past returns. However, he is optimistic about the potential for a decent earnings growth among small-and mid-cap firms with promisinggrowthopportunities in manufacturing, logistics and supplychain,aidedbyinitiatives like Make in India, and production-linked incentive schemes. Padiyar anticipates a favourable a risk-reward ratio for the broader market, driven by sustainedearningsgrowthoverthe next five years. A section of experts, however, were of theviewthatsome consolidation may be necessary to ensure the market is on a healthy trajectory.

Although data from the Association of Mutual Funds in India (Amfi) showed a 16.4% decline in equity mutual fund inflows in April, totalling ₹18,917 crore compared to ₹22,633 crore the previous month, inflows into equity funds was positive for the 38th consecutive month. While equity schemes saw a steady influx during April, it also marked the lowest inflow in four months, Pagaria said. “While the inflows slowed comparedtoprevious months, the fluctuationsarenot unexpected”. According to Nirav Karkera, head,research,Fisdom,therehas been a subtle shift among investorsfollowingthestresstestresult and newfound sense of confidence due to greater transparency, and assurances of wellmanaged funds. One reason for the robust equity inflows is contributionsfromsystematicinvestment plans (SIPs) which stood at an all-time high of ₹20,371 crore in April, against ₹19,270 crore in March. In April, the number of SIPaccountsreachedanewhigh of8,70,11,401,surpassingMarch’s count of 8,39,71,299.

Assets Under Management (AUM) of SIPs also reached an all-time high of ₹11,26,128.67 crore , against ₹10,71,665 crore in March. Besides, MF folios hit a record of 18,14,68,286.

SIP contribution stood at an all-time high of ₹20,371.47 crore in April as against ₹19,270.96 crore in March