India’s mid-cap and small-cap stocks will get a boost after the regulator changed the rules for multi-cap mutual funds, a move that analysts say could boost around Rs 400bn ($ 5.4bn). ) to the general market.
Multi-cap funds must hold at least 75% of their assets in stocks, compared to 65% today, with 25% in large, medium and small companies to ensure they meet their mandate to invest in a broad set of stocks, the Indian Securities and Exchange Board said in a circular late Friday.
The ruling that sets out how equity assets will be distributed across segments aims to level the playing field in a polarized market, where a handful of large companies have helped the major stock indices eliminate most of the induced losses. by virus even with India the new Covid-19 global hotspot. Multi-cap funds hold 74% of their Rs 1.4 trillion in assets in large-cap stocks, according to JM Financial Research.
“Many multi-cap funds have traditionally been managed with a large cap bias, in the range of 60% to 75%, with some even going as high as 85% -90% depending on your views on the relative valuations between the three segments. ”Said Kaustubh Belapurkar, director of fund research for Morningstar Investment Adviser’s Indian unit.
The mid-cap segment can fetch Rs 130 billion, while Rs 270 billion could flow to smaller companies as managers rebalance portfolios, Belapurkar said. JM Financial estimates the total inflow at 411 billion rupees. The funds have until February 2021 to meet the new allocation rules.
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Smaller companies, the stars of the Indian market in 2017, have lagged behind benchmarks for the past two years as investors sought the safety of major stocks amid headwinds of the crisis in the shadow banking sector and even the slowdown in economic growth. before the pandemic occurred.
The S&P BSE MidCap Index fell for the second year in a row in 2019, even as the leading S&P BSE Sensex posted its fourth annual advance.
A move by Sebi to standardize the ranking of funds in 2018 led to the majority of cash flows shifting to the top 100 companies. Friday’s order aims to restore balance, analysts said.
“Whether it is attributable to Sebi’s previous categorization or not, the mid-cap indices have slipped over the two-year period as money has flowed into the large caps,” said Vidya Bala, head of research and co-founder of Chennai. Primeinvestor.in. “With small businesses under funding pressure, the regulator may see a need to redistribute money in the capital market.”
–With the help of Ashutosh Joshi.
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