SEBI’s MF reclassification hits small cap universe

Fund inflows into segment plunge to Rs. 22 cr. from Rs. 5,650 cr.
The capital markets regulator’s decision last year to reclassify mutual fund schemes to help bring uniformity in investment strategy and asset allocation seems to have made the small cap universe a big casualty, with a bulk of the mutual fund flows going into large and mid caps.
An analysis by domestic brokerage Prabhudas Lilladher has found that between January and June, when mutual fund houses churned their portfolios to comply with the new regulatory guidelines, mid cap and large cap stocks witnessed net buying of Rs. 14,500 crore and Rs. 21,900 crore, respectively. The same period saw net buying of a paltry Rs. 22 crore in small cap stocks.
This assumes significance as the period prior to the churn saw net inflows of Rs. 5,650 crore in small cap stocks, while large and mid caps reported net inflows of Rs. 8,170 crore and Rs. 14,320 crore, respectively.
“Our analysis indicates that small caps bore the brunt almost entirely due to the SEBI circular on mutual fund reclassifications while for mid caps, the subsequent changes to Nifty Midcap index apart from the SEBI circular caused a vast rotation between stocks,” the brokerage said.
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