Investors prefer 'safety' of large-cap schemes; redemptions down in June

Large-cap schemes saw a sharp fall in redemptions in June, while fresh allocations to the category continued. Redemptions halved to Rs 2,196 crore in June, as investors preferred the safety of blue-chip firms over mid- and small-caps.

According to experts, redemptions had gone up as investors were booking profits in these schemes. 

“Market volatility ahead of elections had prompted profit-taking in these schemes. However, investor behaviour has changed following the election outcome,” said Sunil Subramanian, managing director of Sundaram Mutual Fund (MF).

In April and May, these schemes had attracted marginal net flows of Rs 50 crore in each month, as redemptions and fresh flows were more or less on a par. In June, net flows in large-cap schemes surged 30 times to Rs 1,509 crore.  Industry observers say the uptick in flows in large-cap schemes can also be attributed to increased allocation by high networth investors (HNIs). 

“Expectations around the Budget and election-related uncertainty petering out are likely to have triggered fresh allocations from HNIs. Large-cap schemes have been among the better-performing categories, which are a source of comfort to HNIs to place their bets,” said Swarup Mohanty, chief executive officer (CEO) of Mirae Asset. 

“Investors’ preference for large-cap schemes has also been due to the perception that these are safer,” said Rahul Parikh, CEO of Bajaj Capital. Meanwhile, net flows in mid-cap schemes fell 33 per cent to Rs 844 crore. Small-cap schemes also saw flows slip by the same margin at Rs 927 crore. 

“Some level of fatigue must have set in for investors exposed to mid- and small-cap schemes,” said Mohanty. 

Mid- and small-cap schemes are yet to show strong signs of recovery. In the three-month period, mid-cap schemes delivered negative returns of 3.8 per cent, while small-cap schemes gave negative returns of 4.9 per cent. 

According to fund managers, betting big on mid- and small-caps at this juncture can be fraught with risks.  “Several mid-sized firms relied heavily on credit lines from non-banking financial companies, which continue to remain under stress. While post-elections, some mid- and small-cap names saw an uptick, the earnings outlook doesn’t offer much comfort,” said a fund manager.  Analysts say the market performance remains narrow, so a secular rally in mid- and small-caps can be some time away. 

“Within mid- and small-caps, there are select opportunities in some segments and stocks. The market performance is not yet broad-based. Across market-caps, only select stocks are doing well,” said Pankaj Pandey, head of research at ICICI Securities. 
 

Overall, equity flows in June rose 41 per cent to Rs 7,663 crore. The equity assets managed by the MF industry stood at Rs 7.2 trillion at the end of June.