According to sources, fund houses have approached the market regulator to widen the universe of stocks that are currently categorised as large-caps and mid-caps.
"Sebi is consulting mutual fund houses to understand the challenges. This would help mutual funds (MFs) limit unnecessary churn of stocks to fall in-line with the updated list of stocks, issued every six months," said the chief executive of a fund house.
Under the existing norms, the top 100 companies by market value fall in the large-cap bracket, the next 150 are tagged as mid-caps, and the remaining stocks are part of the small-cap universe. Association of Mutual Funds in India (Amfi) prepares a list of stocks every six months for each of these baskets, according to the definitions laid out by the regulator.
MF executives have requested Sebi to consider adopting a framework that takes into account a company's contribution to total market capitalisation, rather than sticking to a specific set of companies in the large- and mid-cap universe.
"This would allow the market to expand beyond a ranking-based system that is bound by a specific number of companies," the executive added.
In October 2017, Sebi came out with the scheme classification norms to ensure that mutual fund schemes make investments in-line with their stated scheme mandates.
YES Bank, Vodafone Idea off large-cap list
YES Bank and Vodafone Idea can come under further selling pressure from large-cap mutual fund schemes, as these stocks were taken off the large-cap list by Amfi in its recent ranking of companies on the basis of their six-month average market capitalisation. The other stocks removed from the large-cap list were Indiabulls Housing, New India Assurance, and Cadila Healthcare. MFs will have to re-balance their portfolios based on the new categorisation.
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