The Securities and Exchange Board of India’s (Sebi’s) directive to mutual funds on investment limits in multi-cap schemes resulted in widespread buying in small-cap stocks on Monday.
The BSE small-cap index jumped by 4 per cent, even as the Sensex declined by 98 points to 38,756.63 and the Nifty50 shed 24 points to 11,440.05.
The BSE 250 small-cap index gained 5.26 per cent and the mid-cap index increased 1.56 per cent. The NSE Nifty small-cap 250 index shot up by 5.18 per cent.
In a circular issued on Friday, the market regulator specified that minimum investment in equity and equity related instruments of large, mid- and small-cap companies should be minimum 25 per cent each of total assets.
Deepak Jasani, head of retail Research, HDFC Securities, said that the recent Sebi circular on allocation by multi-cap schemes spurred buying in small- and mid-caps in anticipation of fund buying that could emerge later to adhere to the new regulation.
The mutual fund industry exposure in mid- and small-cap stocks is around 16.4 per cent and around 6.25 per cent, respectively. As a result, in order to meet the minimum 25 per cent location to mid and small-caps, fund houses will have to move an aggregate investment of Rs 12,600 crore into mid-cap stocks and move an aggregate investment of Rs 27,000 crore to small-caps. So, funds amounting to Rs 40,000 crore will move to mid and small-cap companies. Though Sebi has given the mutual fund industry four months time to revise their portfolios, industry insiders say that the rebalancing of the portfolio is likely to commence from this week.
On Monday, the market started on a strong note, thanks to upbeat global cues and favourable news related to Covid-19 vaccine trials. However, a sharp decline in the banking and financials erased all the gains and pushed the index lower as the day progressed.
“The broader markets outperformed and ended in the range of 1.5-4 per cent, in anticipation of fund buying in mid-cap and small-cap space after the recent directives from Sebi for multi-cap funds,” said Ajit Mishra, VP—Research, Religare Broking Ltd.
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