The Securities and Exchange Board of India (Sebi) has asked fund houses operating smallcap funds with a large corpus to share data on their holdings in the total free float of smallcap stocks, according to sources. This is part of the stress tests that the regulator wants fund houses to undertake amid a surge in inflows into smallcap schemes and growing concerns about valuations. Free float refers to the quantum of freely available shares for trading on the stock market.
'The problem is not just slower growth, but also the quality of growth.'
Retail investors now own a larger share of smallcap companies than they did a year ago, thanks to their conviction in mutual fund (MF) schemes focused on this segment. Data from Capitaline shows that MFs' average holding in the National Stock Exchange Nifty Smallcap 250 Index stood at 9 per cent at the end of the October-December quarter of 2023-24 (FY24), up from 7.76 per cent in the same quarter of 2022-23.
Those who cannot bear significant downturns (as much as 40 per cent) or have a short horizon should exit entirely.
Total market funds are ideal for long-term investors who prefer a simple, hands-off approach, making them suitable for those unwilling to manage multiple funds.
According to data from BSE, the 4,357 companies available for trade had a combined mcap of around Rs 416 trillion on Tuesday against India's GDP at current prices of Rs 296.6 trillion in FY24.
It is best not to get carried away by returns or take a short-term view of the markets, says Bhavana Acharya.
While selecting a smallcap scheme, go with one that has a good track record and a stable fund manager.
'A fund investor could pick, say, three of the top active funds in any given category.'
Earnings growth is expected to accelerate as lingering toxic effects of note ban ease off and GST settles down. However, stock valuations are high and that means market is also overdue for correction, says Devangshu Datta.
Omkeshwar Singh, Head, Rank MF, a mutual fund investment platform, answers your queries.
Valuations are much higher than the consensus earnings expectations warrant and also much too high in historical terms, says Devangshu Datta.
Omkeshwar Singh, Head, Rank MF, a mutual fund investment platform, answers your queries.
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