The capital market regulator’s decision last year to reclassify mutual fund schemes to help bring uniformity in investment strategy and asset allocation seems to have made the small cap universe its casualty, with a bulk of the mutual fund flows going into large and mid caps.
An analysis by domestic brokerage Prabhudas Lilladher has found that between January and June, when mutual fund houses churned their portfolio to comply with the new regulatory guidelines, mid cap and large cap stocks witnessed net buying of ₹14,500 crore and ₹21,900 crore, respectively. The same period saw net buying of a paltry ₹22 crore in small cap stocks.
This assumes significance as the period prior to the churn saw net inflows of ₹5,650 crore in small cap stocks, while large and mid caps reported net inflows of ₹8,170 crore and ₹14,320 crore, respectively.
“Our analysis indicates that small caps bore the brunt almost entirely due to the SEBI circular on mutual fund reclassifications while for mid caps, the subsequent changes to Nifty Midcap index apart from the SEBI circular caused a vast rotation between stocks,” the report said.
Money flows
“Money flows continued into mid caps, while small caps were abandoned and within mid caps, the index exclusions were sold into while the new incoming ones/ones in status quo were bought into substantially,” it added. While SEBI issued the MF reclassification circular on October 6, 2017, the NSE issued a circular on index replacement on February 21, to become effective from April 2.