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Small-cap and mid-cap mutual fund (MF) schemes are making their presence felt on Dalal Street.
Piggybacking on the sharp rally seen in the shares of medium-size and small-size companies this year, assets under management (AUM) of these schemes have swelled nearly 40 per cent in the past year as against only a 5.4 per cent increase in overall equity assets.
The bulk of these gains have come in the past three months. Since February, when the market started to rally, the AUM of mid- and small-cap funds have gone up nearly 32 per cent. The assets of these schemes stood at Rs 40,605 crore in May, compared to Rs 30,888 crore in February.
Stock markets have been buoyant since the beginning of the year, on expectations that the economy is set for a turnaround under a new government, resulting in lower interest rates and a pick-up in the investment cycle. The rally hasn't been restricted to large-cap stocks; smaller companies have also seen a lot of action, with shares of many companies gaining multi-fold.
"A large number of mid- and small-cap stocks look promising because they are relatively cheaper than some of the large-cap names. As more and more domestic investors return to the market, the outlook for these funds looks promising," said Dhirendra Kumar, chief executive of Value Research.
While mid-cap and small-cap names across sectors have been surging, fund managers said those in the automobile, cement, capital goods and industrial sectors are expected to see further upsides.
The AUM under the mid-cap and small-cap funds now account for a little more than a fifth of the total equity AUM of Rs 1.89 lakh crore as of May.
Wealth managers believe investors should consider small-cap oriented MF schemes to play the rally in these counters. "Retail investors should choose the MF route while taking exposure to the mid- and small-cap category, rather than speculate on individual stocks. In a portfolio of stocks like in the case of MFs, there will always be elements which act as a hedge and help limit the downside risks," said Raghavendra Nath, managing director, Ladderup Corporate Advisory.