Nishant Kumar, Reuters
Mumbai: Equity fund managers increased exposure to mid-cap and small-cap stocks on hopes a revival of interest in them would sustain, a Reuters poll of 12 asset management company between 18-23 May showed.
The exposure of diversified equity funds to such stocks rose to 29.92% of assets in May from 23.41% in April with over half of the respondents planning further investment in mid-cap stocks in the next three months, the poll showed.
This is line with the findings of the Reuters poll in April.
“The valuation differential has turned in favour of mid-caps,” Srividhya Rajesh, fund manager at Sundaram BNP Paribas Asset Management Co. Ltd, said.
A year ago, “mid-caps used to trade at a premium to large-caps. Now, they are trading at a discount,” she added.
India’s benchmark 30-share BSE index was at 17.33 times one year forward earnings at close on Wednesday, while the BSE mid-cap index was at 13.95 times, Reuters data showed.
Srividhya said medium and small-sized companies, which had underperformed their large-cap counterparts last year, could deliver 15% to 20% return over the next one year.
The BSE mid-cap and BSE small-cap indices have risen 19.7% and 11.7% respectively in one year to 23 May, underperforming a 32.71% gain in the 30-share index. But in the last two months, they have bettered the 30-share index. Fund managers also said investment in mid-cap and small-cap stocks derived force from an expectation that the current cycle of monetary tightening could end soon.
“They are more sensitive to interest rates,” Srividhya said. Medium and small-sized firms don’t have the option to borrow from abroad like their large-cap counterparts and hence an end to the rate hike cycle was a good news for them, she explained.
The Reserve Bank of India has raised its key lending rate five times since June and tightened reserve requirements to rein in inflation, and a Reuters poll shows many analysts now see just one more rate rise this year.
Tech Stocks Losing Sheen?
Fund managers cut their exposure to information technology stocks in May to 9.49% from 12.9% in April fearing an appreciating rupee against the dollar would hit their margins.
“Technology, I think, was a bit out of favour for some people largely because of the fear on the currency,” I. V. Subramaniam, director of Quantum Advisors Pvt. Ltd said.
“The profitability growth which some near-term investors expected could have been hurt by the appreciating rupee.”
The rupee has gained about 9% against the dollar so far in 2007, hitting a nine year peak of 40.50 on Monday.
He said he retained a positive outlook on the sector as the technology companies were moving up the value chain and had indicated very good volume growth.
The Reuters poll showed more than 45% of the respondents plan to raise their exposure to information technology stocks in the next three months.