Getty ImagesMany market pundits may be writing off mid cap and small cap segments, but some mutual fund managers believe that time is ripe to invest in mid cap and small cap mutual fund schemes.
“We are bullish on small and mid caps. There are many small and mid caps which have become very attractive, even more than large caps. It makes sense to look at them,” says Neelesh Surana, CIO, Mirae Asset India. However, he also believes that there are apprehensions about the small cap segment. “Small and mid cap is a large universe and you have to always put filters of quality and management. You have to be much more careful with small caps because of the liquidity risk,” Surana adds.
The mid cap and small cap segments have seen the worst hit in the ongoing mayhem in the market. Small cap schemes are down -15.93 per cent in the last one year and mid cap funds are down (-12.22 per cent). Despite the bloodbath in these two segments, fund managers believe that investors should not ignore them.
As the economic slowdown continues and depressing data points continue to spook the market each passing day, many market pundits believe that small caps have become very risky and should be avoided. The Amfi data shows that investors put the maximum amount of money in large caps funds in the last month.
An inflow of Rs 1,068 crore was registered in mid caps funds and Rs 1,307 crore in small cap funds. “Small caps have corrected more, the problem there is the liquidity risk. However, there are really good opportunities in that space as well. In terms of the valuations and the company specific approach, I don't think we are writing off small caps at this point,” says Sonam Udasi, fund manager, Tata Mutual Fund.
Fund managers believe that ignoring small cap or mid cap segments is not a good option at this point because small cap companies have more potential to grow. “I think there is opportunity for money to be made in all three segments including small caps. We are not of the view that small and mid caps are not going to make money. For example there are very attractive small caps in IT sector, auto sector. It is just a matter of time,” says Neelesh Surana.
Fund managers believe that they are maintaining hygiene in selecting small cap companies and stocks. This is because of many small cap companies are facing issues due to their dysfunctional management and liquidity issues. “We are specifically going for companies and sectors where cash flow is not a problem and promoter pledges are not there and the company is not very leveraged. If these basic criteria are met, we don’t mind whether it is large cap or small cap,” says Sonam Udasi.
These fund managers also believe that, five years from now, good small cap companies have a better chance of making more money than large caps. There are apprehensions about the liquidity in small cap space because of domestic and global issues. But there is potential in the small cap and mid cap space. However, mutual fund managers also believe that retail investors are better off in multi cap funds.
“For retail investors, we believe that you should have a portfolio that is skewed towards multi cap. Small and mid cap should be the extra 20-30 per cent. This is because large caps have better metrics, better management and growth etc,” says Neelesh Surana. Sonam Udasi also agrees with the view. “In the longer term, muti cap funds will be less volatile from returns perspective. Retail investors should stick to them,” says Udasi.
“We are bullish on small and mid caps. There are many small and mid caps which have become very attractive, even more than large caps. It makes sense to look at them,” says Neelesh Surana, CIO, Mirae Asset India. However, he also believes that there are apprehensions about the small cap segment. “Small and mid cap is a large universe and you have to always put filters of quality and management. You have to be much more careful with small caps because of the liquidity risk,” Surana adds.
The mid cap and small cap segments have seen the worst hit in the ongoing mayhem in the market. Small cap schemes are down -15.93 per cent in the last one year and mid cap funds are down (-12.22 per cent). Despite the bloodbath in these two segments, fund managers believe that investors should not ignore them.
As the economic slowdown continues and depressing data points continue to spook the market each passing day, many market pundits believe that small caps have become very risky and should be avoided. The Amfi data shows that investors put the maximum amount of money in large caps funds in the last month.
An inflow of Rs 1,068 crore was registered in mid caps funds and Rs 1,307 crore in small cap funds. “Small caps have corrected more, the problem there is the liquidity risk. However, there are really good opportunities in that space as well. In terms of the valuations and the company specific approach, I don't think we are writing off small caps at this point,” says Sonam Udasi, fund manager, Tata Mutual Fund.
Fund managers believe that ignoring small cap or mid cap segments is not a good option at this point because small cap companies have more potential to grow. “I think there is opportunity for money to be made in all three segments including small caps. We are not of the view that small and mid caps are not going to make money. For example there are very attractive small caps in IT sector, auto sector. It is just a matter of time,” says Neelesh Surana.
Fund managers believe that they are maintaining hygiene in selecting small cap companies and stocks. This is because of many small cap companies are facing issues due to their dysfunctional management and liquidity issues. “We are specifically going for companies and sectors where cash flow is not a problem and promoter pledges are not there and the company is not very leveraged. If these basic criteria are met, we don’t mind whether it is large cap or small cap,” says Sonam Udasi.
These fund managers also believe that, five years from now, good small cap companies have a better chance of making more money than large caps. There are apprehensions about the liquidity in small cap space because of domestic and global issues. But there is potential in the small cap and mid cap space. However, mutual fund managers also believe that retail investors are better off in multi cap funds.
“For retail investors, we believe that you should have a portfolio that is skewed towards multi cap. Small and mid cap should be the extra 20-30 per cent. This is because large caps have better metrics, better management and growth etc,” says Neelesh Surana. Sonam Udasi also agrees with the view. “In the longer term, muti cap funds will be less volatile from returns perspective. Retail investors should stick to them,” says Udasi.
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