Mutual fund investors continue to bet big on small cap stocks

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Mutual fund investors continue to bet big on small cap stocks

Small-cap schemes of asset management companies remain popular amongst mutual fund investors as evidenced by the fact that such schemes garnered the biggest share of inflows among equity schemes in May. 

Small-cap schemes of mutual funds witnessed net inflows of Rs 3,282.50 crore in May, per data from the Association of Mutual Funds in India (AMFI). Incidentally, this is a multi-year high in terms of monthly inflows in such schemes. 

More importantly, the inflows in small-cap schemes came even as categories like large-cap, flexi-cap, and equity-linked savings scheme (ELSS), among others, saw net outflows. 

On an overall basis, equity-oriented schemes saw net inflows of Rs 3,240.30 crore in May—clearly showing that the net flows were primarily on account of the inflows in small-cap schemes. 

Experts attribute this trend to the fact that there has been a significant correction in the small-cap arena and now there are many good quality stocks available at attractive valuations. 

“Major flow in small-cap fund appears based on the call of investors that small-cap funds and stocks have corrected substantially during the correction and now they believe there is enough value in small-cap stocks. So, they are trying to participate in the upward movement through small-cap funds,” said N S Venkatesh, Chief Executive of AMFI, while speaking to media. 

“I don’t see major profit booking happening (in small-cap schemes) for the next 3-4 months. Money will continue to flow in small-cap schemes,” he added. 

Interestingly, small-cap schemes have been in demand over the past few months, as per data from AMFI. In April, small-cap schemes saw net inflows of Rs 2,182.44 crore, following Rs 2,430 crore in March. 

This assumes significance as the BSE Smallcap index was down 1.8 per cent in 2022 even as the benchmark S&P BSE Sensex gained nearly 4.5 per cent. In the calendar year to date, the Sensex rose a little over 3 per cent while the small-cap barometer has gained almost 8.5 per cent.

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