With the markets running up in the past few months and mid caps rallying, mutual funds have doubled their investment in several small companies in the quarter ended June.
According to data collated from Capitaline, MFs have doubled their investment in 68 companies in the three months to June over the previous quarter.
This number stood at 22 at the end of the March quarter and 28 at the end of the December quarter of 2013. Most of these firms belonged to the mid-cap pack, with 39 of them having a market capitalisation of less than R2,000 crore.
Interestingly, 53 — or 78% of these 68 companies — have beaten the Sensex returns of about 22% in the year to date. The BSE Midcap gave returns of 32% in the same period, while the BSE Smallcap has given returns of 48%.
“The market, which had ignored midcap companies for a long time, has started looking at them again. Mid caps have done well in the past few weeks, and with hopes of a turnaround in the economy, the stocks are likely to do well going forward,” said Sunil Singhania, CIO, equity investments, Reliance MF.
Astra Microwave has seen the highest increase in MF investment of 17.13 percentage point (ppt) in the June quarter. SKS Microfinance (8.15 ppt), Praj Industries (7.61 ppt), Sterling Holiday Resort (5.85 ppt) and DB Corporation (4.66 ppt) have also seen a significant rise in MF investment.
Auto component manufacturers Wheels India, promoted by the TVS Group, has seen a doubling and even tripling of its MF holding over the last four quarters.
The small- and mid-cap category logged the most gains in the quarter ended June. The Crisil–Amfi Small & Midcap Fund Performance Index, which represents the performance of small- and mid-cap funds, appreciated 28.9% during the quarter, higher than the Crisil–Amfi Large Cap Fund Performance Index (up 18.9%) and Crisil–Amfi Diversified Equity Fund Performance Index (23.9%).
“Attractive valuations, coupled with positive market sentiment, helped small- and mid-cap stocks outperform the broader market,” said a Crisil Research report. For instance, the PE multiple of CNX Midcap was 14.3x on March 31, 2014, a perceptible discount to its historical peak of 26.3x in January 2008.
Brokerage Nomura believes the market rally may continue and has set a new August-end 2015 Sensex target of 30,310, an upside potential about 20%.
“The market’s earnings multiple is still not expensive, in our view. Our hitherto positive call on the market was underpinned by our bullish stance on rate cyclicals, essentially because we expected inflation to surprise positively in the coming quarters on fiscal consolidation, a stable currency and normalisation of seasonal food prices.”