The Hindu Business Line : Hard task for fund managers in picking quality small-caps

Kolkata May 28 With larger quantities of money chasing small- and micro-cap stocks, there is mounting pressure on fund managers to track down the right sort of listed names, the obvious challenges stemming from low liquidity and insufficient research notwithstanding.

The trend is all the more evident in a context marked by the hardsell initiated by a section of the asset management industry to convince clients and some investors' willingness to play for bigger stakes on the small-cap front.

Fund managers agree that they are indeed working harder to spot good small-caps, a situation that may well get compounded with the probable increase in the number of products aimed at the segment.

"Yes, more players are eyeing the small-cap space actively. This, when the constraints are known to all", said Mr Sanjay Sinha, who will shortly take over as CIO at SBI MF. Those who are locking into these stocks today will, sooner than later, start looking closely at their performance, he added.

There has been lately a clear addition to the small-cap oriented products, courtesy launches by the likes of Sundaram BNP Paribas and JM. DSP Merrill Lynch too has introduced a small/micro-cap fund. These have resulted in a marked step-up in the quantum of money that is invested in this segment.

Fund sources point out that their job on this front is extremely demanding - particularly when they face a scenario characterized by inadequate information about companies. "We have to trawl the entire listed space in order to find bankable stocks. But then, precise information is not always easy to find here", noted Mr S.N. Lahiri, co-head of equities, DSP ML MF.

It is not that there is a dearth of small-caps. The products rolled out earlier to invest in this segment have all spread their assets over a number of stocks in an attempt to meet their fund managers' objective of diversification.

Incidentally, some of the more recent launches (including diversified funds offered by newcomers JP Morgan and AIG) have stated they do not have any market-cap bias.

More small-caps surface

Thanks to fund managers' new-found love for small- and micro-cap companies, the contribution of the latter to portfolios is on the rise, fund sources point out.

A number of funds, including some that earlier did not set great store by them, have invested in such counters in recent days. These represent a range of sectors, including pharma, auto ancillaries and IT, it is pointed out.

"It is difficult to come across high-quality small-caps. But the fact that investors have started noticing them more is a pointer of sorts", maintained Mr Tushar Pradhan, CIO - Equities, AIG.