Amfi categorisation of stocks: What does it mean for investors?

The market capitalisation cut off for large-cap stocks is at Rs49,700 crore, whereas it is Rs17,400 crore for midcaps. Image: Shutterstock

As the new categorisation of stocks by mutual funds industry body, the Association of Mutual Funds in India (Amfi) will be effective from August 1. Here are the details investors need to know. The categorisation done on half yearly basis will be valid till January next year.

Q. What are the key changes from August 1?
The market capitalisation cut off for large-cap stocks is at Rs49,700 crore, whereas it is Rs17,400 crore for midcaps. Of the total market cap, large-cap stocks attribute 68.3 percent in the August list, as compared to 69.4 percent in the review done in January. As the midcap segment made a spectacular rally, these stocks attribute 16.6 percent in the August list as against 16 percent in January review. Similarly, even in the lower segment, smallcaps attribute 15.1 percent in August list versus 14.6 percent in January review. All the fresh listings have debuted in the small cap category. However, Mankind Pharma, with a current market cap of Rs69,716 crore, has made a direct entry into the large-cap segment. Shares of Mankind Pharma have surged over 60 percent over its issue price.

Q. What are big shake-ups in the new list?
Besides Mankind Pharma, six stocks will move to large-cap category from midcap. These stocks are Jindal Steel and Power, Punjab National Bank, IDBI Bank, Canara Bank, TVS Motor and Tube Investments. Seven stocks (FSN E-Commerce, JSW Energy, Tata Elxi, Indus Towers, Page Industries, Macrotech Developers and InfoEdge) will be moved to midcaps from large-caps. Nine stocks (Punjab and Sind Bank, Carborundum Universal, Bank of Maharashtra, Fertilisers & Chemicals Travancore, Jindal Stainless, Rail Vikas Nigam, New India Assurance, Bharat Dynamics and IIFL Finance will be upgraded to midcaps from small caps. There are 17 new stocks in small cap category, out of which 10 are moved from midcap segment while seven are new listings.
 
Q. What are large, mid and smallcap stocks?
Definition of large, mid and smallcap stocks are based on market capitalisation reviewed on half yearly basis by Amfi. As per market regulator Sebi (Securities and Exchange Board of India) mandate, top 100 companies based on six-month average market cap are categorised as large-caps, next 101-250 companies are midcaps and rest from. 251 companies are smallcaps.

Also read: Beating the big boys: Sebi's move for complete T+1 and towards T+0 explained

Q. Why categorisation of stocks is mandated by Sebi?
In October 2017, Sebi made it mandatory that listed stocks must be strictly categorised into baskets with a well-defined classification of large-cap, midcap and smallcap stocks. The rule was set to ensure uniformity for all equity mutual fund schemes or similar type of schemes launched by different mutual funds. It simplifies and brings uniformity so that a mutual fund investor is able to evaluate different options available, before taking an informed decision to invest in a scheme. It is also mandated that Amfi prepare the list of stocks with categorization in consultation with Sebi and stock exchanges, based on the market capitalisation provided by BSE, NSE and MSEI.

Q. Does categorisation or reclassification of stocks mean funds inflow or outflow?
According to Sebi norm, any updation in the list, mutual funds would have to rebalance their portfolios (if required) in line with updated list, within a period of one month. An active equity fund manager may choose to add or remove or increase or reduce weightings on stocks from their respective portfolios, depending upon their fundamental rationale. As the stocks move up from lower categorisation to higher (say smallcap to midcap and midcap to large-cap), it increases their visibility. Fund managers typically further analyse such stocks and add them as per their rationale while complying with the scheme mandate.