The stress in small- and mid-cap mutual fund schemes has been on the rise since the market started crashing in September, resulting in longer periods to liquidate portfolios. According to the latest stress-test results announced by the Association of Mutual Funds in India (AMFI), Axis Small Cap and DSP Small Cap funds took 29 days and 53 days, respectively, to dilute 50 per cent of their portfolios last month, compared to 19 days and 35 days in September.
For diluting 25 per cent of their portfolios, these funds now require 15 days and 26 days, up from nine days and 17 days in September. Interestingly, the small-cap AUM of both Axis MF and DSP MF decreased to ₹29,958 crore and ₹13,282 crore last month, from ₹24,754 crore and ₹16,700 crore. The overall AUM of small-cap funds also fell to ₹2.74 lakh crore from ₹3.29 lakh crore.
In the mid-cap segment, HDFC Mid-cap Fund took 45 days and 23 days to dilute 50 per cent and 25 per cent of its assets, respectively, with an AUM drop to ₹67,599 crore from ₹77,690 crore. Kotak Mahindra MF and SBI MF also reported higher days to liquidate their mid-cap assets. The overall AUM of mid-cap funds decreased to ₹3.41 lakh crore from ₹3.97 lakh crore.
Vivek Sharma, Investment Head at Estee Advisors, noted that stress levels in the small-cap and mid-cap segments have risen significantly, with many stocks experiencing significant declines. He pointed out that the mid-cap segment is facing similar pressures, driven more by valuation concerns than business fundamentals.
To reduce emotional stress amidst market fluctuations, Sharma recommended continuing with systematic investment plans to average out costs over time. Nikunj Saraf, VP at Choice Wealth, attributed the selling pressure in small-cap funds to SEBI’s caution and MFs limiting inflows. He highlighted opportunities in domestic growth sectors like renewables, specialty chemicals, and premium consumer goods, advising investors to focus on businesses with pricing power, low debt, and solid execution.
In conclusion, while near-term volatility is expected to persist, medium-term opportunities exist in select sectors. As stocks continue to face pressure, investors are advised to stay focused on long-term investment strategies to navigate through market uncertainties.
