Capital market regulator SEBI will soon widen the ambit of large, mid and small cap stocks based on their market capitalistion after the dizzying rally in equity markets last year.

Mutual funds have moved SEBI to enhance the large-cap classification from top-100 companies in terms of market capitalisation to 125. Subsequently, mid-cap will now be from 126th stock to 276th against the current practice of 101 to 250, while stocks from 277 will be termed as small-caps.

The market capitalisation of both NSE and BSE has increased 35 per cent in last one year on large scale retail participation on the new found economic prospects and rush of companies to list on exchange by launching initial public offerings.

The market capitalisation of both the leading exchanges has jumped to ₹725-lakh crore as of last December-end against ₹536-lakh crore in January 2023, per SEBI data.

Large caps present compelling opportunities amid market volatility

Portfolio rejig

The number of demat accounts (a pre-requisite for equity investment) registered with both NSDL and CDSL has grown 26 per cent last December to 13.93 crore from 11.05 crore in January 2023. The bellwether Sensex has rallied 20 per cent to 71,731 points in the last one year ended last December.

Per SEBI direction, AMFI classifies stocks as large-, mid- and small-caps every six months. Mutual funds should rejig their portfolio of schemes based on these classification. The latest list was released in January.

The heady rally in equity markets had pushed up the threshold for large-cap 35 per cent to ₹67,000 crore in January against ₹49,700 crore in last June. The mid-cap cut off had risen 26 per cent to ₹22,000 crore against ₹17,400 crore.

Kripashankar Maurya, AVP-Research, Choice Broking, said the increase in threshold limit of stocks for mutual funds will help investors reduce concentration risk, as the market capitalisation of various stocks has increased considerably in the last 2-3 years, along with the rising SIP inflow.

Losing large-caps

Interestingly, the market share of large-cap stocks fell to 64 per cent in January against 68 per cent in last June after the overall market widened. Mid-caps (101-250) increased to 18 per cent against 17 per cent in the June review, while that of the small caps (251 and beyond) make up 18 per cent, registering a significant increase from June’s 15 per cent.

The sharp increase in share of mid- and small-cap in the overall market indicates the rising risk associate especially for retail investors.

Despite the sharp increase in initial public offerings, an analyst said, mid-, small- and micro-cap valuations continue to be in a historically unattractive valuation zone relative to large-caps, although their growth expectations attracts retail investors.

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