Among the top 25 schemes by assets under management (AUM), seven reported the highest increase in AUM on a month-on-month (MoM) basis in May, all belong to the midcap and smallcap categories.
HDFC Smallcap Fund, Axis Midcap Fund, Nippon India Smallcap Fund, HDFC Midcap Opportunities Fund, and Nippon India Multicap Fund saw the most increase in AUM in May, according to data shared by Motilal Oswal Financial.
The HDFC Smallcap Fund saw a nearly 7% MoM change in the net asset value (NAV) in May. Axis Midcap Fund and Nippon India Smallcap fund saw a 6.7% change in NAV last month. HDFC Midcap Opportunities Fund saw a 6% rise in NAV.
The data further showed that of the Nifty Midcap100 and Nifty Smallcap100 constituents, mutual funds were buyers in 60-63% of the stocks, which is higher than what they bought in Nifty50 stocks.
Among Nifty Midcap100 stocks, the highest purchases were seen in Vodafone Idea, Tata Elxsi, Aditya Birla Capital, Coforge, and Piramal Enterprises.
Among Nifty Smallcap100 stocks, the highest purchases were in Suzlon Energy, Mazagon Dock Shipbuilders, Amara Raja Batteries, RBL Bank, and Raymond.
Why The Frenzy?
After a time correction of more than a year, valuations turned a lot more attractive in the broader market. Further, ebbing concerns over inflation and hopes of interest rates reaching a peak increased conviction in the midcap and smallcap stocks.
Year-to-date, shares of Tata Elxsi have given a whopping 24% returns to investors. Similarly, Coforge has given 18% returns. These stocks have given double-digit returns despite the earnings growth concerns in the information technology sector which has weighed down largecap stocks.
If we look at some of the champions in the smallcap space, Mazagon Dock shares have given a handsome 33% return to investors so far in 2023. Suzlon Energy has given 36% returns, while Raymond has given about 12% returns.
Outlook
Money managers remain bullish on the midcap and smallcap segment and do see inflows into these funds continuing.
However, several fund managers opined that having a flexi approach will be the best and even the safe option for steady returns.
“A flexicap approach may prove more advantageous in the long term. Such an approach affords a heightened degree of flexibility in allocating investments across various market capitalization segments, empowering investors to prioritize the inherent potential of individual companies rather than relying solely on their classification based on market capitalization,” says Mehul Jani, Fund Manager – Listed Equity, 360 ONE Asset Management.
Umesh Kumar Mehta of Samco Mutual Fund also believes that flexicap funds would be better bets given the flexibility they offer fund managers to pick quality stocks.
“In our opinion, the best bet would be on Flexi-cap funds, because that gives flexibility to the fund manager to pick genuine quality stocks, irrespective of the market cap and leverage on the fundamental quality aspect of the business,” Mehta, the CIO at the fund house, said.
Given that the value style of investing was in trend in the past year, Mehta sees a very high likelihood of growth style picking up very soon this year.
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)