SEBI’s Multi-Cap Fund Rule: Analysts Pick Small, Mid Caps Likely To See Inflows
Brokerages have come out with lists of the small and mid caps that may see inflows after the change in allocations.
The regulatory change in allocations in multi-cap funds is expected to drive inflows into small- and mid-cap stocks, driving a surge in such companies.
For multi-cap schemes, the Securities and Exchange Board of India mandated a 25% minimum threshold to invest in each of large, mid and small caps. Prior to this change, there was no such requirement besides at least 65% investment in equities. The funds have time till February to change allocations.
While fund managers have raised concerns and said they won’t buy what is not necessary, estimates by multiple brokerages peg the number between Rs 35,000 crore and Rs 50,000 crore.
This change in allocation is a huge positive for investment-worthy small and mid caps, according to veteran investor Porinju Veliyath. Valuations of many relevant, futuristic and “well-managed but ridiculed” companies will regain sanity, he said.
According to data compiled by Sushil Finance, 15 small-cap stocks contribute 52% of the top small-cap holdings of various mutual funds. A JM Financial’s analysis shows that multi-cap schemes have invested 74.2% of their total assets worth Rs 1.4 lakh crore in large caps, with 15.8% and 5.3% invested in mid and small caps, respectively, as of July this year.
Brokerages have come out with lists of the small and mid caps that may see inflows after the change in allocations. Here’s what they say:
Edelweiss Securities
The brokerage expects inflows of Rs 40,000 crore out of large caps—Rs 12,000 crore to mid caps and Rs 28,000 crore to small caps.
“Initially, given the radical rejig, potentially the entire small-cap universe may see a sharp rally,” Edelweiss Securities said in a note. The brokerage filtered out 57 stocks that stand to gain from such inflows.
According to a note, to select the companies:
- It analysed about 550 stocks (ranked 100 to 650) and identified about 210 category leaders, rated and unrated.
- Filtered out leaders on the basis of return on equity and return on capital employed of more than 15%, positive free cash flows and valuations of less than 50 times its estimated earnings for FY22.
Here’s the list of top small and mid caps from the list of 57 stocks prepared by Edelweiss Securities:
Small Caps
- Sheela Foam
- Security & Intelligence Services
- Avanti Feeds
- Blue Star
- Fine Organic Industries
- Grindwell Norton
- Galaxy Surfactants
- Indian Energy Exchange
- Jyothy Labs
- Graphite India
- Kei Industries
- HEG
- Alkyl Amines Chemicals
- Cera Sanitaryware
- Century Plyboards (India)
Mid Caps
- Whirlpool
- Glaxosmithkline Pharmaceuticals
- Page Industries
- IRCTC
- Balkrishna Industries,
- Zee Entertainment
- Bata India
- Bayer Cropscience
- Gillette India
- Coromandel International
- Sanofi India
- AIA Engineering
- Supreme Industries
- Dr. Lal Pathlabs
- Polycab India
Philip Capital
The brokerage, in a note, listed top 15 small- and mid-cap stocks in multi-cap schemes that may see further addition:
Mid Caps
- AU Small Sinance
- SRF
- Ramco Cement
- Balkrishna industries
- Bharat Electronics
- TVS
- Voltas
- Power Finance Corp.
- IPCA Labs
- CESC
- CG Consumer
- REC
- Page industries
- Jindal Steel & Power
- Aditya Birla Fashion
- Atul
- ACC
- Bata
Small Caps
- Vaibhav Global
- Linde India
- MCX
- BEML
- Kalpataru Power
- Bharat Dynamics
- Nippon Life
- Strides Pharma
- Century Textiles
- V Mart
- EIH
- Star Cement
- Jyothy Labs
- Central Depository
- JK Lakshmi
- Justdial
- VRL Logistics
- Praj
- Finolex
- Camlin
- Mahindra Logistics
- KNR Constructions
- OEL India
- GE T&D
- Engineers India
- Ashoka Buildcon
Sushil Finance
The brokerage, in a note, said the small caps added by multi-cap funds in the last one month could see buying interest after the change on allocations.
Small Caps
- Sheela Foam
- Ceat
- Indian Energy Exchange
- Narayana Hrudayalaya
- VST Industries
- Procter & Gamble Health
- CCL Products (India
- Sundaram-Clayton
- Sudarshan Chemical Industries
- The Great Eastern Shipping
- KPIT Technologies
- Avanti Feeds
- TCI Express
- Matrimony.Com
- Equitas Holdings