Retail investors now own a bigger slice of small-cap companies than a couple of years earlier, attributable to their growing conviction in mutual fund (MF) schemes focused on this space, noted a recent report by Business Standard.
Quoting data from Capitaline, BS pointed out that MFs’ average holding in the NSE Nifty Smallcap250 rose to 8.67 percent from 7.67 percent in the last two financial years. It also highlighted that the number of companies with over 20 percent MF holdings, meanwhile, increased from 15 to 24.
At the end of May, the top five small-cap firms with the highest MF holdings were Carborundum Universal, Blue Star, Cyient, Gujarat State Petronet, and Cholamandalam Finance, informed BS.
Also, at the end of March 2023, MFs owned 27 percent of Carborundum Universal, up from 25 percent in March 2021. Similarly, their ownership in Blue Star rose from 20 percent to 24 percent during the two-year period, it added.
According to BS, in 2021–22 and 2022–23, MF investors poured a net of ₹32,220 crore into active small-cap funds, with inflows rising steadily month-on-month. The growth continued thus far this financial year (2023–24), with investors injecting a record ₹3,280 crore in May. As a result, the total assets under management (AUM) of active small-cap schemes surged 79 percent in two years to ₹1.5 trillion at the end of May 2023, it observed.
As per the report, MF executives and distributors ascribe the growing traction for small-cap funds to the category’s emergence as the top performer over the long term and investors perceiving the space as comparatively better valued than mid- and large-cap.
On average, small-cap funds have delivered a 21.3 percent annualised return in 10 years, compared to 13.4 percent in the case of large-cap funds, said BS.
However, there are concerns that fund managers will find it challenging to deploy funds to the right companies at the right valuations if inflows continue to rise in small-cap schemes, the report added.
Owing to this problem, SBI MF suspended lump sum investments in its small-cap fund and capped systematic investment plan investments at ₹25,000. As of now, four schemes are managing over ₹10,000 crore and 10 schemes have over Rs. 5,000 crore in AUM, further stated the report.