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Watch out for mid-cap companies such as Godrej Properties, Crompton Consumer, Astral, Jubilant and Arvind, says CLSA Asia Pacific Markets in a report in the light of SEBI’s recent move on classification and minimum investment requirements.
CLSA Asia Pacific expects an additional investment of around ₹19,300 crore to flow into mid-cap companies through mutual fund schemes. The expected buying in mid-cap companies is likely to come at the cost of large- and small-cap companies, the report added.
According to the norms floated by the market regulator in October, mid- and small-cap equity funds will need to have minimum of 65 per cent exposure to mid- and small-cap stocks, respectively.
According to the directive, mutual funds are required to have only one scheme for the categories of multi-cap, large-cap, mid-cap, small-cap, etc, while index funds/ETFs, funds of funds and sectoral funds have no such limitation.
Minimum allocationEvery fund should have a minimum allocation in equity as defined by the fund category. For example, large-cap schemes should have minimum 80 per cent investment in large caps, a mid-cap fund should have at least 65 per cent of the assets in the mid-caps, etc.
The circular defines large-cap as the first 100 stocks by market-cap, mid-cap from 101 to 250, and small-cap (stocks below 251), which will be updated half yearly in June and December by AMFI. Funds will have one month time to realign their portfolios once AMFI gives an updated list.
Currently, there are a total of 42 MFs, which have 315 equity schemes. The top five funds account for nearly 58 per cent of total equity assets. Of the total MF schemes, 44 per cent by value are currently categorised as large-, mid- or small-cap schemes and are impacted, it said.
Other stocks recommended by the brokerage are GlaxoSmithKline Consumer, Torrent Pharma, Oberoi Realty, Aditya Birla Fashions, and Varun Beverages.
An additional investment of around ₹3,500 crore is expected in large-cap companies, while ₹1,800 crore may flow into small-cap stocks, the CLSA study said. The brokerage said the actual net buying would be a function of how the fund houses reclassify the funds or effect mergers of various schemes in order to comply with the SEBI regulation of one scheme per category for a fund house.
SEBI has given fund houses time till December 6 to analyse each of their existing schemes and revert with the category classification, and proposals, if any, to merge multiple plans into one category.
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