MF small-cap schemes plunge into the red as market trembles

The rout in the small- and mid-cap stocks so far this month has shaved off 2-5 per cent of investors’ wealth in mutual fund schemes, following a tepid performance in February.

Small-cap stocks have been under pressure ever since market regulator SEBI expressed concern about froth in the space, with steady inflows in mutual fund schemes chasing few select stocks and pumping up their valuations.

While all the small-cap schemes are in the red so far this month, DSP Small Cap Fund’s return was down 5 per cent and that of Axis MF, HSBC MF, Canara Robaco MF and LIC MF schemes dipped 4 per cent each.

However, over the one-year period, these funds have delivered a return of 61 per cent to 37 per cent even as investors continue to book profit at frequent intervals.

Mid-cap mutual fund schemes were down by about 3 per cent to 1 per cent this month. Mirae Asset Midcap Fund and DSP Midcap Fund were down 3 per cent each.

Mid-cap funds have given a return of 60 per cent to 37 per cent on the back of strong inflows.

Broader market

BSE Small cap index has crashed 3,210 points so far this month to 42,322 points against 45,532 points on March 1 and BSE 250 Small cap index was down 433 points to 5,687 points (6,071 points) in the same period.

The BSE Mid-cap index was also down by 1,044 points to 38,652 against 39,696 amid huge volatility.

The bellwether Sensex was down 913 points in the same period at 72,832 against 73,745 on March 1.

Stress tests

Concerned over unrelenting inflows, especially from retail investors, SEBI had directed AMFI to conduct stress test on these funds. This has revealed that a few small-cap funds with large assets under management can take anywhere 10-60 days to sell 25 per cent and 50 per cent of asset in case of huge redemption.

Nirav Karkera, Head-Research, Fisdom, said at a headline level and from a time-series perspective valuations in the segment especially that of small-caps may appear to be on the higher side.

However, he said investors should take into account earnings growth potential against the current valuation before neglecting all these stocks for bubble, he said.

“We believe there are still pockets of opportunities where either more value will be unlocked or growth will be delivered in the medium to long-term,” he added.

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