Mutual funds bet big on small-caps in June quarter; majority sees MF stake rise
From a fund flow perspective, Small Cap funds have been in favour, leading inflows in open-ended schemes with Rs 4,024.5 crore in June up 25 percent from Rs 3,214 crore in May.
Mutual funds showed a clear bias towards smaller companies in the second quarter of FY25, latest shareholding pattern reveals. Based on data analysed by Moneycontrol, mutual funds increased their exposure to majority of stocks in the BSE Smallcap segment with a little over 43 percent of the index constituents seeing a rise in the mutual fund stake.
Further, while nearly 30 percent of the firms saw the mutual fund stake dip, there was no change in the rest 27 percent of the BSE SmallCap constituents. In terms of absolute numbers, as many as 293 small-cap companies out of 677 saw an increase in the stake held by mutual funds in the June quarter.
The preference for small-caps during the June quarter coincided with the BSE SmallCap index surging more than 17 percent, outpacing the 14 percent rise in the BSE Midcap index and the 8.7 percent gain in the Nifty 50.
From a fund flow perspective, Small Cap funds have been in favour, leading inflows in open-ended schemes with Rs 4,024.5 crore in June up 25 percent from Rs 3,214 crore in May. According to data from AMFI, the assets under management (AUM) of Small Cap funds have grown from Rs 2.95 lakh crore to Rs 3.44 lakh crore in the last six months.
In terms of specific companies, RBL Bank saw the largest rise, with mutual fund ownership jumping from 15.27 percent in March to 29.19 percent in June. Marathon Nextgen Realty followed with mutual funds raising their stake from just 2.42 percent to 11.89 percent, indicating a strong build-up in institutional interest.
In Sai Life Sciences, mutual fund shareholding rose from 11.54 percent to 18.73 percent, while Zydus Wellness. saw an increase from 11.61 percent to 18.39 percent. Rounding out the top five, PNB Housing Finance. recorded a rise in mutual fund shareholding from 20.09 percent to 26.76 percent over the quarter.
Also read: Equity fund inflows rise 24% in June to Rs 23,587 crore: AMFI data
What is driving these gains?
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According to Nirav Karkera, Head of Research at Fisdom, the renewed interest in small-caps is driven by three key factors. “First, there’s a genuine improvement in earnings visibility across several small-cap names as companies are starting to turn the corner operationally. Second, strong incremental flows including those tied to mandates requiring small-cap exposure are pushing fund managers to deploy capital. And third, with large-cap valuations looking stretched, there’s limited room left to chase returns at the top end of the market,” says Karkera.
“It’s not a blanket bullish call on small-caps,” he added noting that opportunities exist, but they require sharp discretion and focused selection.
Meanwhile, mutual funds reduced stake in 74 percent — 37 companies — of Nifty 50 stocks while cutting exposure in nearly 63 percent of midcaps as well.
Christy Mathai, Fund Manager at Quantum AMC echoed a similar sentiment, emphasizing that while earnings may improve, valuations remain elevated in most areas. His fund is finding value in specific pockets such as financials, IT, chemicals, and auto ancillaries and is maintaining a cautious stance with some cash still parked on the sidelines.
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