SIZE DOES MATTER

EVEN AS SMALL-CAP MUTUAL FUND SCHEMES SEE RECORD INFLOWS WITH INVESTORS BETTING BIG ON THE SEGMENT, SOME FUND MANAGERS APPEAR WARY OF DEPLOYING MORE MONEY INTO SMALL-CAP STOCKS. IS THE PARTY OVER FOR THEM?

- ASHISH RUKHAIYAR

'SMALL IS BEAUTIFUL' or ‘the bigger the better’—which one do you think has the best value?

Now, imagine the possibility of purchasing a product that has grown to a very large size but still centres around things that are deemed small.

That’s the realm of small-cap funds, which invest primarily in small-cap stocks. Though these stocks are considered small in terms of market capitalisation, such has been the investor appetite for them that a few funds in the segment have become so large that deploying investor money has become a problem, forcing some fund managers to temporarily halt new subscriptions.

To understand why that is the case we need to first tackle a frequently asked question that always surfaces when the benchmark indices scale record highs: What is the outlook on the smallcap universe of stocks, especially when the small-cap barometer has outpaced the benchmarks, the S&P BSE Sensex and the broader Nifty 50? A bunch of fund managers reckons the recent rally and the resulting surge in valuations demand that they take a breather in terms of putting more money into such stocks that often encounter liquidity problems during hefty buy or sell orders.

Consider this: While the Sensex has gained 9.45 per cent so far in 2023, the S&P BSE SmallCap index has rallied 17.50 per cent through July 17. Interestingly, this comes on the back of a 1.80 per cent fall in the small-cap index in 2022, when the Sensex rose nearly 4.5 per cent.