SEBI’s Multi-Cap Fund Rule: Analysts Pick Small, Mid Caps Likely To See Inflows

The regulatory change in allocations in multi-cap funds is expected to drive inflows into small- and mid-cap stocks, driving a surge in such companies.For multi-cap schemes, the Securities and Exchange Board of India mandated a 25% minimum threshold to invest in each of large, mid and small caps. Prior to this change, there was no such requirement besides at least 65% investment in equities. The funds have time till February to change allocations.While fund managers have raised concerns and said they won’t buy what is not necessary, estimates by multiple brokerages peg the number between Rs 35,000 crore and Rs 50,000 crore.This change in allocation is a huge positive for investment-worthy small and mid caps, according to veteran investor Porinju Veliyath. Valuations of many relevant, futuristic and “well-managed but ridiculed” companies will regain sanity, he said.According to data compiled by Sushil Finance, 15 small-cap stocks contribute 52% of the top small-cap holdings of various mutual funds. A JM Financial’s analysis shows that multi-cap schemes have invested 74.2% of their total assets worth Rs 1.4 lakh crore in large caps, with 15.8% and 5.3% invested in mid and small caps, respectively, as of July this year.Brokerages have come out with lists of the small and mid caps that may see inflows after the change in allocations. Here’s what they say:Edelweiss SecuritiesThe brokerage expects inflows of Rs 40,000 crore out of large caps—Rs 12,000 crore to mid caps and Rs 28,000 crore to small caps.“Initially, given the radical rejig, potentially the entire small-cap universe may see a sharp rally,” Edelweiss Securities said in a note. The brokerage filtered out 57 stocks that stand to gain from such inflows.According to a note, to select the companies:It analysed about 550 stocks (ranked 100 to 650) and identified about 210 category leaders, rated and unrated.Filtered out leaders on the basis of return on equity and return on capital employed of more than 15%, positive free cash flows and valuations of less than 50 times its estimated earnings for FY22.Here’s the list of top small and mid caps from the list of 57 stocks prepared by Edelweiss Securities:Small CapsSheela FoamSecurity & Intelligence ServicesAvanti FeedsBlue StarFine Organic IndustriesGrindwell NortonGalaxy SurfactantsIndian Energy ExchangeJyothy LabsGraphite IndiaKei IndustriesHEGAlkyl Amines ChemicalsCera SanitarywareCentury Plyboards (India)Mid CapsWhirlpoolGlaxosmithkline PharmaceuticalsPage IndustriesIRCTCBalkrishna Industries,Zee EntertainmentBata IndiaBayer CropscienceGillette IndiaCoromandel InternationalSanofi IndiaAIA EngineeringSupreme IndustriesDr. Lal PathlabsPolycab IndiaPhilip CapitalThe brokerage, in a note, listed top 15 small- and mid-cap stocks in multi-cap schemes that may see further addition:Mid CapsAU Small SinanceSRFRamco CementBalkrishna industriesBharat ElectronicsTVSVoltasPower Finance Corp.IPCA LabsCESCCG ConsumerRECPage industriesJindal Steel & PowerAditya Birla FashionAtulACCBataSmall CapsVaibhav GlobalLinde IndiaMCXBEMLKalpataru PowerBharat DynamicsNippon LifeStrides PharmaCentury TextilesV MartEIHStar CementJyothy LabsCentral DepositoryJK LakshmiJustdialVRL LogisticsPrajFinolexCamlinMahindra LogisticsKNR ConstructionsOEL IndiaGE T&DEngineers IndiaAshoka BuildconSushil FinanceThe brokerage, in a note, said the small caps added by multi-cap funds in the last one month could see buying interest after the change on allocations.Small CapsSheela FoamCeatIndian Energy ExchangeNarayana HrudayalayaVST IndustriesProcter & Gamble HealthCCL Products (IndiaSundaram-ClaytonSudarshan Chemical IndustriesThe Great Eastern ShippingKPIT TechnologiesAvanti FeedsTCI ExpressMatrimony.ComEquitas Holdings.SEBI’s Multi-Cap Fund Rule: Won’t Buy Small, Mid Caps If It Doesn’t Make Sense, Says Nilesh Shah

SEBI’s Multi-Cap Fund Rule: Analysts Pick Small, Mid Caps Likely To See Inflows

Brokerages have come out with lists of the small and mid caps that may see inflows after the change in allocations.

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SEBI’s Multi-Cap Fund Rule: Analysts Pick Small, Mid Caps Likely To See Inflows

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