Dolat Capital: SEBI’s New Norms For Multi-Cap Funds  

Dolat Capital Report

The Securities and Exchange Board of India (SEBI) released new guidelines for investing under Multi Cap funds.

The changes, significant as they are, will lead to a major reshuffle of allocations under the multi cap fund category.

The large cap weightage is set at an upper limit of 50% versus the current flexible limit with the asset managers.

On the gainers, the mid cap and small categories are set to gain with minimum of 25% allocations being set for each.

The impact of these guidelines will be directly seen on the allocations by multi cap funds, but indirectly also on the other categories. The estimated asset under management (AUM) for multi cap are around 18 billion U.S. dollar (Rs 1.4 trillion, 18% of equity AUM).

We gather from industry sources that the average weightage for mid-cap and small cap will be 15-17% and 7-9% respectively. If these have now to be aligned to the new norms, it will imply an inflow of 3.5-4 billion U.S. dollar (Rs 250-300 billion) to the small caps.

This will be a massive flow considering the average traded s / volumes in majority of these stocks are miniscule – our base calculations show an average market cap of 400 million U.S. dollar for the top 250 small caps (Refer Exhibit 2) and 67 days to buy 1% equity.

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