Mumbai: The behaviour of retail investors in Samvat 2080 has turned out to be a point of contention among mutual fund industry veterans, with two out of four of them suggesting that the bias for small and mid caps (Smids) will continue despite a majority of these stocks underperforming their benchmarks, even as three-fifths of the bluechips outperformed the bellwether Nifty 50 index since Diwali last year. Those arguing in favour of a shift in bias use valuation logic to support their claims, while those expecting a continuum said Smid indices’ outperformance to the Nifty in the past one year would impel ret-ail investors to continue pumping money into small and mid cap sch-emes at the cost of large caps .
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“Investors tend to buy the last one year’s outperformance. This shows complete non- cognisance of risk profiling as investors are replacing core portfolio funds with riskier small and midcap funds,” said Swarup Mohanty, CEO, Mirae MF. Mohanty justified his stance by citing the outperformance of large cap active funds to their benchmarks, in contrast to mid and small cap funds.
Bloomberg data shows that while the Nifty Smallcap 250 outperformed the Nifty 50 index from 21 October 2022 to date, 77% of its constituents underperformed the index returns over the same period . In the case of Nifty Midcap 150, almost 70% constituents underperformed the index while only 38% of Nifty stocks underperformed the bellwether 50 gauge index.
Dhruv Mehta, chairman of Foundation of Independent Financial Advisors said, “I see MF investors continuing to all-ocate funds to small and midcap schemes over large cap ones at least for a while, as they typically tend to follow the last one year returns. The indexes they make up have outperformed the large cap index dramatically in the past one year and their quarterly results have met Street expectations.”
“Smart money will flow from the small and the mid caps to the large caps in Samvat 2080, given the cheaper and compelling valuations of the latter, after a 2 year consolidation,” said Nilesh Shah, MD of Kotak Mahindra Asset Management Company .
His views are echoed by A Balasubramanian, MD & CEO of Aditya Birla Sun Life AMC.
“I feel large caps, particularly in the banking, IT and FMCG space, could attract more investor flows relative to small or midcaps with valuations of the former having corrected to attractive levels over the past two years,” Balasubramanian said.
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Updated: 08 Nov 2023, 09:58 PM IST