Record Cash Inflows Have India Funds Halting New Subscriptions
(Bloomberg) -- Managers of Indian small-cap stock funds are being forced to turn away investors amid record inflows, a potential sign that a rally in the nation's equities is overheating.
Nippon India Small Cap Fund and Tata Small Cap Fund are among those that have temporarily suspended taking fresh investments as they struggle to deploy the cash that is rapidly piling up.
“The step is warranted considering the recent sharp rally in the small-cap space and increased investor participation,” Nippon Life India Asset Management Ltd. said in a statement earlier this month.
With Indian stock benchmarks resuming climbs to successive record highs, local retail investor money has been pouring into smaller targets. Small-cap funds took in an all-time monthly high net inflow of 54.7 billion rupees ($666 million) in June, more than triple the amount of midcap peers, with large-cap vehicles seeing outflow.
A $590 Billion India Rally Faces Earnings, Retail Selling Tests
The latest surge in Indian stocks has been largely driven by foreigners, who have purchased around $15 billion net worth of the nation's equities since the end of March. That's helped drive an 11% gain in the blue-chip S&P BSE Sensex Index in that span.
In comparison, the S&P BSE Small Cap Index has jumped 24% over the same period, indicating a flood of liquidity chasing larger gains in more obscure names. Funds suspending inflows show profitable investments may be getting harder to find.
“There are limited opportunities available at reasonable valuations in this space,” said Nirav Karkera, head of research at investment advisory firm Fisdom. Some of the bigger funds in the small-cap space are also spread thin, already holding investments in many stocks, making it difficult to discover new opportunities when markets rally, he added.
Goldman Sees India Holding Its Own Even If China Stocks Rebound
Nippon India Small Cap Fund, which manages about $3.9 billion of assets, has returned 20% so far this year, outperforming 77% of its peers, according to data compiled by Bloomberg. The smaller Tata Small Cap Fund has returned about 15%.
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