Small stocks, large falls

The recent reclassification of mutual fund schemes has been directly responsible for the fall in the small cap index

After studying law I vectored towards journalism by accident and it's the only job I've done since. It's a job that has taken me on a private jet to Jaisalmer - where I wrote India's first feature on fractional ownership of business jets - to the badlands of west UP where India's sugar economy is inextricably now tied to politics. I'm a big fan of new business models and crafty entrepreneurs. Fortunately for me, there are plenty of those in Asia at the moment.

g_108663_mfi-416888221_280x210.jpgImage: Shutterstock 
 
Small cap stocks have had a disastrous six months. After a sharp rise in 2017, they started falling in February in line with a global correction. However, unlike mid and large cap indices, which regained their valuations, small caps have continued to be on the downslide. During January to June, the mutual fund industry saw an inflow of Rs 61,000 crore. Why then did only small caps bear the brunt of this fall?

A recent report by Prabhudas Liladhar lays the blame on Sebi’s reclassification of mutual fund schemes. Large caps are defined as 1-100th stock, according to market capitalisation, mid caps as between 101-250th and small caps as stocks after the 250th by value.

The net result: Large cap, mid cap and multi cap funds which earlier may have had some small cap stocks had to sell their positions. While purchases of small cap stocks accounted for 27 percent (Rs 1,525 crore) of all mutual fund buys in January, starting February there was a net sell number for that category. The 13 small cap schemes (as per the new Sebi definition) account for just Rs 34,340 crore in assets under management. The small cap index is down by 21 percent. 

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