Smallcaps and midcaps outperform post big multicap rejig, stocks gain up to 17%

The broader indices on Dalal Street cheered Sebi’s latest move to tweak asset allocation framework for multicap mutual funds.

The market regulator on Friday said multicap funds will now invest a minimum 75 per cent of total assets in equities with 25 per cent each in largecap, midcap and smallcap companies.

As a result, the BSE Midcap and Smallcap indices gained over 2 per cent and 4 per cent, respectively, in Monday’s morning trade. On the other hand, the benchmark BSE Sensex was down 0.40 per cent at 38,699 at around 2.20 pm (IST).

With a rally of 9.53 per cent, Mphasis was among the top gainers in the midcap space at around 2.20 am (IST). It was followed by Crompton Greaves (up 4.79 per cent), AU Small Finance Bank (up 4.21 per cent) and NBCC (up 4.02 per cent).

On the other hand, KPIT Technologies, Persistent Systems, MCX, Blue Star and Aegis Logistics gained between 11 per cent and 17 per cent in the smallcap index.

Edelweiss Securities said, “Assuming no relabeling or scheme merging, this entails a big rejig within multicap schemes, which are primarily largecap dominated (74 per cent of AUM). To meet this new criterion, nearly Rs 40,000 crore needs to flow from large to small and midcaps. Smallcaps, especially, may see strong price action, as holdings of mutual funds in them are low.”

The brokerage house is bullish on Aarti Industries, AIA Engineering, Cyient, Eclerx, Godrej Properties, Greaves Cotton, IEX, Just Dial, JK Cement, Tata Power, MMFS, Quess Corp and TCNS Clothing in the broader market.

However, Sebi on Sunday said that mutual funds have many options to meet the requirements of its circular pertaining to asset allocation framework for multicap schemes based on the preference of their unitholders.

In a press release, the markets watchdog clarified that apart from rebalancing their portfolio in the multicap schemes, mutual funds could inter-alia facilitate switch to other schemes by unitholders, merge their multicap scheme with largecap scheme or convert their multicap scheme to another scheme category, for instance, large cum midcap scheme.

According to JM Financial, mid and smallcap stocks are quite thinly traded. At an aggregate level for all BSE-500 stocks that are currently considered ‘small-caps’, it could take 2-3 months of continuous buying for multicap schemes to achieve the required re-balancing.

The brokerage is bullish on stocks like Ceat, Suprajit Engineering, Century Plyboards, Greenpanel Industries, Prince Pipes and Fittings, JK Lakshmi Cement and Ashoka Buildcon in the smallcap space.