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The sharp fall in prices of a few bluechip stocks during the last few months may lead to a churn in the large-cap mutual fund portfolios as the Association of Mutual Funds in India is all set to categorise stocks based on their market capitalisation and announce a new list soon.
Capital market regulator SEBI has mandated AMFI to prepare the list of large-, mid- and small-cap stocks every six months based on their prevailing market capitalisation.
According to SEBI’s ‘categorisation and rationalisation of mutual fund scheme’ norms, large-caps are defined as top-100 companies in terms of market-cap, while companies from 101 to 250 in market-cap have been classified as mid-cap and the rest are tagged as small-cap stocks. Following the turmoil in the stock market in the last few months, stocks such as Aditya Birla Capital, Bharat Forge, Shriram Transport Finance, Sun TV Network and TVS Motors, besides public sector companies such as Bharat Electronics, BHEL and Hindustan Aeronautics may fall out of AMFI’s large-cap list.
Berger, Divi’s in large-cap
Some of the stocks that will enter the large-cap list include Berger Paints, Divi’s Laboratories, GlaxoSmithKline Consumer Healthcare, Indiabulls Vetures, L&T Infotech, Page Industries, Torrent Pharmaceutical and United Breweries.
According to SEBI norms, AMFI is expected to categorise stocks on market-cap and announce the new list within five days from the end of the six-month period.
Subsequent to the updation of the list, mutual funds have to rebalance their portfolios in line with the updated list within one month.
Viral Berawala, Chief Investment Officer, Essel Mutual Fund, said a slight churn in the top 100 stocks is expected whenever a new list is released.
More transparent
Unlike the changes made in index constituents, the rejig in the list of top 100 companies is more transparent and portfolio managers can predict the new entrants and dropouts based on market capitalisation changes, he said.
Moreover, the churn in portfolio will be limited as most of the large-cap funds have already cut exposure to small-cap stocks and invested more than the mandated limit of 80 per cent in frontline companies, he added.
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