From SBI to Quant, smallcap schemes witness easing of stress levels

Majority of large-sized smallcap schemes deployed cash amid correction in March

Few of the smallcap schemes like that of State Bank of India (SBI), Axis and Quant showed improvement on the liquidity front in the latest round of stress tests.

On an average, the number of days required to sell 50 per cent of the smallcap fund portfolio declined slightly in March for the top 12 schemes to 26.7 from 27.2 in February.

SBI and Axis smallcap funds managed to improve their liquidity metrics even as their smallcap exposure inched up in March from February.

SBI smallcap fund's smallcap holdings rose from 81 per cent to 82 per cent. Axis smallcap fund also saw a 1 percentage point rise in exposure.

However, some schemes like that of Nippon India, HDFC and Kotak saw an increase in the number of days required to liquidate 50 per cent of the portfolio.

The smallcap segment of the market went through a correction in March with the Nifty Smallcap 100 index falling 4.5 per cent.

March was also the first in 30 months when the smallcap fund category witnessed an outflow. Investors had pulled out Rs 94 crore last month.

Most smallcap schemes had used the correction to deploy cash in their schemes.

The cash holding declined for Nippon India, HDFC, Axis, Quant, Kotak and Franklin Templeton. But for the remaining schemes in the top 10 — SBI, HSBC and DSP — there was a rise in cash holdings.

The liquidity data is part of the fresh disclosures mandated by the Securities and Exchange Board of India (Sebi).

The regulator had called for such tests in the face of strong inflows into smallcap and midcap funds, despite concerns over high valuations, to keep investors better informed.

A stress test calculates the number of days required to liquidate assets based on recent trading volumes in the underlying stocks.

The format, designed by the Association of Mutual Funds in India (Amfi), also sets other specific conditions such as adopting a pro-rata basis of liquidation after removing the 20 per cent least liquid holdings.

For the test, mutual funds have to assume a 10 per cent participation volume and three times the average daily volumes seen in the past three months for each of the stocks in the portfolio.