Over 75 Small-Cap And Mid-Cap Stock Recommendations For The Short Term

On 11 September, SEBI revised portfolio allocation rules for multi-cap equity mutual funds that have made it mandatory for these funds to have at least 75 percent of its asset allocation in equity and equity-related investments compared to the current 65 percent requirement.

Further, the fund will have to invest a minimum of 25 percent of their portfolio each in large-cap, mid-cap and small-cap companies. These changes will become effective from 1 January 2021.

Since asset management companies will have to lower exposure in their funds to large caps to comply with the rules, analysts expect a rally in small caps and mid-caps. According to media reports, an estimated 73 percent of the AUM (assets under management) in multi-cap funds is tilted towards large-caps as of August 2020.

"The volume distribution is 60% in large-cap stocks, 30% in mid-cap stocks, and only 10% in small-cap stocks. This creates a big anomaly in the system & can create a frenzy if necessary supply is not available. We have seen liquidity based frenzy in the past. They can be quite sharp and bring significant move just on the back of the scarcity premium," Elara Capital said in a report.

As per its calculations, small-caps could see fund inflow of Rs 100-150 billion, translating into buying in 40-60 small-cap names.

Multi cap mutual funds are schemes that invest in stocks across market capitalization, that is, companies of all sizes. These are considered less risky than investing in any single category- large-cap, mid-cap, small-cap.

Later, on 13 September, clarifying its stand in changing the rules, SEBI pointed out that multi-cap schemes have skewed portfolios with some allocating as much as 80 percent investment in large caps while some others having zero or insignificant allocation to small-cap companies. The regulator said that the name of the scheme should reflect the nature of the portfolio.

SEBI has provided options to fund managers as well as investors who are skeptical of the arrangements under the new circular.

"Apart from rebalancing their portfolio in the Multi-Cap schemes, they could inter-alia facilitate a switch to other schemes by unitholders, merge their Multi-Cap scheme with their Large Cap scheme or convert their Multi Cap scheme to another scheme category, for instance, Large cum Mid Cap scheme," SEBI said on 13 September.

AMCs have also been alerting their clients on the same.

Recently, Motilal Oswal Mutual Fund wrote to its investors on Motilal Oswal Multicap 35 Fund. It said that the industry body, AMFI, is in the process of making a representation to SEBI to continue the current dynamic nature of the Multicap category. Further, it said that it also has options to merge or convert the scheme will maintaining the current risk-reward of the fund.

"We want to assure you that any step we take would be keeping in priority the unitholder's interest first," it added.

Brokerage recommendations

Various brokerages have released recommendations in the small-cap and mid-cap space that are likely to benefit after the revision in rules of fund allocation of multi-cap schemes

ICICI Securities

1. Akzo Nobel
2. Balkrishna Industries
3. Aavas financiers
4. Prince Pipes
5. Westlife
6. JK Cement
7. Galaxy surfactants
8. MCX
9. Dixon
10. Techno Electric
11. Zee Entertainment
12. Natco Pharma
13. Mishra Dhatu Nigam
14. VRL Logistics
15. Sumitomo Chemicals

"The new rules set by SEBI will entail multi-cap funds to increase their holdings in mid and small caps by 9% (Rs127bn) and 18% (Rs270bn) while reducing their large-cap allocation by 24% (Rs355bn) over the next 5 months," ICICI Securities said in a report.

IIFL

1. AU Small Finance Bank
2. Jubilant FoodWorks
3. SRF ltd
4. Bharat Electronics
5. Ramco Cements
6. Balkrishna Industries
7. Power Finance Corporation
8. TVS Motors
9. Voltas
10. Crompton Greaves Consumer Electricals
11. REC
12. KEC International
13. MCX
14. Sheela Foam
15. IndiaMART InterMESH Ltd
16. Kalpataru Power Transmission
17. BEML
18. Bharat Dynamics
19. Strides Pharma Science Limited

Motilal Oswal

1. ABFRL
2. JK Cements
3. Tata Power
4. Ashok Leyland
5. Dr. Lal Pathlabs
6. Birla Corp
7. IEX
8. Team Lease
9. Essel Propack
10. KEI Industries

Emkay

1. PI Industries
2. IPCA Industries
3. SRF
4. Cholamandalam Investment and Fin Co Ltd
5. Zee Entertainment
6. Varun Beverages
7. NHPC
8. Ashok Leyland
9. Max Financial
10. Crompton Greaves Consumer Electricals
11. Gujarat State Petronet
12. JK Cement
13. Federal Bank
14. Dixon Technologies
15. Navin Fluorine International
16. Granules
17. CESC
18. Persistent Systems
19. Rallis India
20. Radico Khaitan
21. Firstsource Solutions
22. Kalpataru Power Transmission
23. KNR Construction
24. Gulf Oil Lubricants
25. JK Lakshmi Cement
26. Advanced Enzyme Technologies
27. Equitas Holdings
28. Atul Auto

5Paisa Research

1. Godrej Agrovet Ltd
2. Coromandel International
3. Ashok Leyland
4. Kajaria Ceramics
5. Ipca Laboratories
6. Kaveri Seeds
7. Quess Corp
8. Sudarshan Chemical Industries
9. Heidelberg Cement India
10. Persistent Systems

Disclaimer

The article is purely informational and is not a solicitation to buy, sell in securities mentioned in the article. Greynium Information Technologies Pvt Ltd, its subsidiaries, associates and the author do not accept culpability for losses and/or damages arising based on information in this article.