The Hindu Business Line : Mid-caps back on equity funds’ focus

Kolkata, Aug. 27 The universe of small- and mid-cap stocks is all agog, courtesy equity funds, some of which seem to be using up part of their spare cash to enter into select counters. A host of transactions entered into by fund houses in recent days point towards increased activity on this front. And that’s not all – fund managers say they will weigh many other possibilities now that valuations have turned more reasonable.

The decline in the market, a trend that has affected large-caps considerably but has not spared small/mid-sized names either, is being seen as an opportunity to include good companies in portfolios, say sources aware of the latest happenings.

Fund houses are calling attention to the fact that quality mid-cap stocks, including ones they currently hold, can now be bought afresh. The mid- and small-cap contingent, it may be mentioned, account for a very critical part of equity funds’ overall allocations, spanning a wide range of sectors.

Mr R. Srinivasan, Fund Manager, Principal MF, is of the view that the segment in question will continue to attract attention, especially because funds may wish to spread their assets across the market capitalisation spectrum. This means funds will continue to explore the possibility of entering these stocks at realistic levels, even if some of these are relatively illiquid.

Among the more recent instances of such activity, as made known by the stock exchanges, is Kesoram Industries, which has seen action initiated by SBI Mutual Fund. After the acquisition, its share in the company stands at 5.04 per cent, marginally up from 4.99 per cent. The mode of acquisition – involving nearly 18,000 shares – is market purchase.

More players

While Kesoram, a diversified company that manufactures cement and tyres, is among the bigger names in the mid-cap space, relatively smaller players have also lately come to the fore. Among these is Action Construction Equipment, which has drawn attention from JM Mutual Fund. The latter, through various schemes, have bought over 33,000 shares, aggregating to 0.2 per cent of the company’s paid-up capital. JM MF’s holding after the transaction stands at 7.24 per cent or more than 13 lakh shares.

The past few weeks have not been too cheerful for mid-caps from the point of view of performance. Data for the month ending July 31, as released by distribution firm Plexus Management, indicate close-end mid-cap funds delivered a mere 1.59 per cent on an average, while their open-end counterparts gave 1.79 per cent.

Nevertheless, the top-10 performers include Birla Mid-cap, which provided 6.35 per cent for the month. Incidentally, the BSE Midcap index gave a modest 1.4 per cent during this period.

The definition of mid-caps has undergone a change of sorts, feels Mr R. Rajagopal, CIO, DBS Chola MF, who refers to the manner in which some of these stocks have grown in the recent past. “The mid-cap range that was recognized till some time ago is not relevant any more. The market has re-defined it in line with the latest developments,” he said adding that the fund house has already factored in this re-definition for its internal use.

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