Market cap band of 251-500 constitutes 50% exposure of the small cap MF schemes in the space of the small cap stocks: Ventura Securities
Follow us Now on Telegram ! Get daily 10 - 12 important updates on Business, Finance and Investment. Join our Telegram Channel
In a recent study from Ventura Securities- “Are small cap funds risky”, on the overall market cap allocation based on the AUM of the schemes, only 8% of the exposure of small cap funds is in large cap stocks, 11% in mid cap and 80% in small cap. In the small cap space, on an aggregate basis, 50% of the exposure is in the band of 251 to 500, 29% in 501 to 1000 and only 2% beyond 1000.
The study has been conducted by Juzer Gabajiwala, Director at Ventura Securities.
* LIC’s small cap fund has the highest allocation of ~68% in the stocks that are ranked below 500 with ~18% in stocks with market cap below Rs. 3,150 crores.
* Quant has the maximum allocation to Large Cap stocks.
* DSP and SBI are true-to-label, with more than 95% allocation to small cap stocks
In the last 5 years, November 2019 to November 2024, the AUM of the small cap mutual funds have grown 6 times at an average annual growth of 48%. There are 29 mutual fund schemes with 23 being more than 3 years old. In the past three years, only six new schemes were introduced in the small-cap category.
The total inflow since FY19-20 has been Rs. 1.03 lac crore which is 12% of the total amount that has been received in equity mutual funds. Thematic/Sectoral funds received the highest allocation during this period, with an impressive inflow of Rs.2.27 lakh crore, accounting for a remarkable 27%.
The table below shows the changes in the market capitalisation of the stocks in the small cap segment.
In the table above, the value of the stock that was ranked 251st in December 2019 has increased by 4x as of today. Similarly, that of the 500th company has grown ~6x and the 1000th company has seen 8x growth. Thus, with the current market cap, the 500th company would have been classified as a midcap stock in December 2019. And the stock which is at 1000th place would have been at ~414th place. Coincidentally, at present, the market cap of TTK Prestige today is 11,714 cr, (~rank 498) and that of SMS Pharma is 2061 cr (~rank 1201). Interestingly, despite a jump in their market cap, their ranks have gone down.
Juzer Gabajiwala, Director, Ventura Securities said, “Small-cap funds remain a largely unexplored and a thrilling opportunity in the mutual fund industry. These funds have the potential to identify future market leaders at an early juncture due to their capacity for robust alpha generation. Although they may be characterized by inherent volatility, a patient and well-researched approach can result in substantial benefits. Moreover, one needs to have a longer duration for these funds and also embrace volatility. So to achieve high return, simply focus on 3 principles – Embrace volatility, Be patient and Maintain a longer holding period.”
Out of the 23 schemes (more than 3 years old), 22 schemes have outperformed the Nifty 500 TRI in terms of CAGR in 1-year and 3-year timeframes. Bandhan’s small cap scheme has been the top performer in terms of 3-year CAGR, which is at 30%, but with high beta, indicating high risk. SBI’s small cap scheme has the lowest Beta at 0.66 and hence it also has one of the lowest downside capture ratios.
Above views are of the author and not of the website kindly read disclaimer
