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Business News/ Market / Stock-market-news/  Domestic inflows drive mid-cap, small-cap indices to record highs
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Domestic inflows drive mid-cap, small-cap indices to record highs

BSE's mid-cap index and small-cap index are up 42.18% and 51.52%, respectively, for the year to date, beating benchmark Sensex, which has added 25.65% so far this year

The BSE’s 30-share Sensex gained 0.62% to close at 33,455.79 points on Monday, and is 410.16 points away from logging a new high. Photo: HTPremium
The BSE’s 30-share Sensex gained 0.62% to close at 33,455.79 points on Monday, and is 410.16 points away from logging a new high. Photo: HT

Mumbai: BSE’s mid-cap and small-cap indices closed at record highs on Monday, buoyed by continued domestic institutional inflows as investors looked for select value bets in the segment.

BSE’s mid-cap index and small-cap index are up 42.18% and 51.52%, respectively, for the year to date, beating benchmark Sensex, which has added 25.65% so far this year.

The mid-cap and small-cap indices rose 0.36% and 0.22%, respectively, on Monday to record closing levels of 17,106.29 and 18,251.77 points, respectively.

The BSE’s 30-share Sensex gained 0.62% to close at 33,455.79 points on Monday, and is 410.16 points away from logging a new high.

Preference for mid-caps is not limited to domestic institutions; foreign investors too are looking at the space more closely, and say they would rather choose this pack, rather than the large-caps.

“Now, it is mid- and small-cap," Mark Mobius, executive chairman of Templeton Emerging Markets Group at Franklin Templeton Investments, told Mint in an interview on Friday, when asked about which space he prefers now.

“Of course, we have to look at large-cap for some of our big funds, but I would say the opportunity is more into the mid-caps which are moving on to become large-caps," Mobius had added.

Experts say there is better value in small- and mid-cap packs.

Around 179 of 850 small-cap stocks have more than doubled so far this year. HEG Ltd and Indiabulls Ventures Ltd have gained the most among them, rising more than 1000% so far in 2017.

Among mid-cap stocks, nine of 94 stocks have more than doubled in the same period. Vakrangee Ltd and Tata Global Beverages Ltd have logged the most gains in the pack. They have jumped 178.55% and 144.41% respectively so far in 2017. No Sensex stock has doubled this year though.

Still, investors need to exercise caution.

“Mid- and small-cap stocks have significantly outperformed large cap over the last few years," said Navneet Munot, chief investment officer, SBI Funds Management Pvt. Ltd.

Over the three fiscal years ending 2017, BSE mid-cap and small cap indices have delivered a compounded annual growth rate (CAGR) of 18.66% and 17.99% respectively, compared with Sensex’s CAGR of 6.62%.

“Given the rise in valuations, one needs to be highly selective," said Munot.

The mid-cap rally has also been fuelled by the change in mutual fund norms.

According to the Securities and Exchange Board of India’s (Sebi) clarification on norms for mutual fund classification on 4 December, market capitalization is the basis for equity fund classification.

For a mid-cap equity fund, at least 65% of the funds need to be invested in mid-cap stocks. These are stocks that rank between 100 and 250 in terms of market capitalization.

Sebi had suggested a broad overview of these changes in an October circular.

“A recent Sebi discussion paper proposes to impose several conditions on domestic equity mutual fund houses and schemes. We analysed the portfolios of 90% (by value) of the domestic equity funds to assess the impact," CLSA said in a 1 December report. “Our key conclusion is that those conditions will likely lead to (approximately) Rs190bn of buying in mid-cap (market cap US$1.4bn-4.4bn) stocks at the cost of large caps and small caps over the next three months," CLSA had added.

A few, however, prefer large caps to mid and small caps.

“In my view, large-caps may see very good performance from hereon. The stocks in the benchmark indices do not move uniformly, as they follow sectoral biases," said Dipen Sheth, head of institutional research at HDFC Securities.

“In mid- and small-cap, they move in tandem with the money chasing the entire lot," said Sheth. “Within the sectors I prefer, I would go for large-caps, because of large liquidity pool and value proposition," he added.

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Published: 12 Dec 2017, 06:53 PM IST
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