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Mid-cap stocks set for a $3-bn boost

According to CLSA, Godrej Properties, Astral, Jubilant Foods, Arvind and Crompton Consumer are some of the mid-cap stocks that could benefit from the imminent churn by equity fund managers

Pavan Burugula  |  Mumbai 

Photo: Shutterstock
Photo: Shutterstock

Stocks in the space are likely to see investments worth Rs 19,000 crore ($2.9 billion) by (MFs) over the next three months, on account of new norms by the (Sebi) on categorisation of schemes.

The market regulator in October came out with a circular on “categorisation and rationalisation of schemes”, in which it has for the first time clearly defined which companies fall in the large-cap, and small-cap categories. It has also set new asset allocation requirements for major categories under equity schemes.

“Our key conclusion is that those conditions will likely lead to Rs 19,000 crore of buying in stocks at the cost of large-caps and small-caps over the next three months,” said Mahesh Nandurkar, India strategist, CLSA.

According to an analysis done by the brokerage, all schemes, barring one, don’t comply with the new rules and will have to tweak their portfolios. These schemes, put together, have assets under management (AUM) worth Rs 71,700 crore.

According to the new rules, a scheme that benchmarks against companies needs to allot at least 65 per cent of the total assets in the segment. For large-cap schemes, at least 80 per cent of assets should be in the blue-chip stocks.

“About 44 per cent of pure equity AUM, which comprises large-, mid- and small-cap funds, would be impacted by the change. To comply with the norms, funds have to make additional purchases worth Rs 19,300 crore in the space. On the other hand, large-cap schemes will need fresh buying of Rs 3,500 crore,” said Nandurkar.

According to CLSA, Godrej Properties, Astral, Jubilant Foods, are some of the stocks that could benefit from the imminent churn by equity fund managers. The brokerage says GSK Consumer, Torrent Pharma, Oberoi Realty, AB Fashions and Varun, on which it has a buy rating, could benefit as well.

This move by came after fund houses retained investment mandates of a lot of schemes despite the regulator asking them to consolidate. The fund houses have now been asked to stick to six categories of schemes: Equity, debt, hybrid, solution-oriented and others.

has also given a formula to determine which stock falls under what category. While the top 100 stocks by market capitalisation would be considered as large-caps, 101 to 250 will be considered mid-caps. The rest would be small-caps.

The Association of in India has been mandated to update the list of stocks in each category on a half-yearly basis: Once in June and then in December. The fund houses will have one month’s time to realign their portfolios.

This buying by domestic fund houses could provide more impetus to the stocks, which have decisively outperformed the benchmark indices this year. During 2017, the BSE MidCap index has gone up 39.2 per cent against 23.3 per cent returns given by the broader Sensex.

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First Published: Sat, December 02 2017. 01:40 IST
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