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Investor base in small cap schemes continues to expand at a very rapid pace
New folio additions in small cap schemes continue to be almost 20-25x of new folio additions in large cap schemes since the beginning of CY23. Investor base in small cap schemes continues to expand at a very rapid pace, says a report by Elara Securities.
New Delhi : New folio additions in small cap schemes continue to be almost 20-25x of new folio additions in large cap schemes since the beginning of CY23. Investor base in small cap schemes continues to expand at a very rapid pace, says a report by Elara Securities.
Strong inflows into smallcap funds continue as November saw another inflow of Rs 3,700 crore, which is inline with average monthly inflows going on over the past 9-months. Midcap flows also expand to record high of Rs 2,666 crore. Large cap flows remain the weakest but some stability coming back since the past 2-months after redemptions over prior 5-months.
Small cap schemes again outperformed Large cap schemes by 2.5 per cent, taking the total CYTD out performance to 20.5 per cent. Small cap schemes have outperformed Midcap schemes also by 6 per cent in CY2023.
The report said this has been a very tough markets for most money managers. Many FMs (largely oldest and biggest asset managers having experience and memories of previous cycles) are ones who have been constantly raising cash (mostly in smallcap) despite markets moving higher. This leg of small cap rally began in March 2023 (small cap index outperformed Nifty by 37 per cent) and simultaneously the median cash of top-10 FMs has expanded from 6 per cent to 7.5 per cent (by September 2023). There has been a small deployment over past 2-months but the higher cash is an indication of increasing negativity with the rally in markets.
Cash plus large cap call is resulting in a big relative under performance for many small cap schemes. Similar under-performance across the board was last seen in 2013-2014 period. In that period, the first leg of rally emerged in small cap names on Modi euphoria. Even that time schemes were running cash levels of 7-9 per cent range. However, a leg of deployment emerged after markets failed to correct resulting in a big laggard chasing over next 6-9 months. In that leg we didn’t see a big index rally but many beaten down names were witnessing buying, the report said.
“We showcase the relative ratio of NAV of 5 small cap schemes (which has history) v/s NSE 250 smallcap TR Index. The idea is to mark phases when smallcap schemes under-performed sharply. Last time such sharp under-performance was seen in the surprise rally of 2013-2014, which was also led by HNIs/Retail,” the report said.
During that period too, cash levels were fairly high. Post that phase we saw a strong leg of deployment in laggard names to cover for the under-performance. In few other instances, the small under-performance reversed on back of correction in Smallcap index, which is what most FMs are hoping for. This time the risk of squeeze is open as cash has started dragging performance sharply.
