Sebi created a lot of buzz among investors and industry players by announcing changes in the asset allocation of multi-cap funds. Starting at the end of January next year, managers of multi-cap mutual funds will need to invest at least 25% of their portfolio each in large-cap, mid-cap, and small-cap stocks. Right now, most multi-cap funds are focused on large caps with around 70-80% of their portfolios in large companies. While mutual funds have the option of merging or converting their multi-cap fund into another category, market analysts expect a huge wave of mid- and small-sized stock buying if these systems decide to remain in multi-capitalizations and to respect the new portfolio rules.
Emkay Global Financial Services estimate ₹280 billion in purchases in small caps and ₹135 billion mid-caps, distributed through sales ₹411 billion large-cap stocks. Financial services further add that the amount of purchases could be affected if existing systems choose to merge with other existing systems or reclassify.
“If the larger multi-cap system chooses to reclassify, the expected amount of purchases drops by a third, which in turn prompts others to realign the portfolio to the new standards,” says Emkay Report.
Emkay has prepared a mid and small cap equity loan calculator for portfolio managers. Here is their inventory list:
Top mid-cap recommendations include Varun Beverages, Ashok Leyland, Max Financial, Vinati Organics, and Crompton Consumer.
Top small-cap recommendations include Equitas, Dixon, Radico Khaitan, Rallis, Kalpataru, KNR Constructions and JK Lakshmi.