INSUBCONTINENT EXCLUSIVE:
ETIG: Mutual fund distributors are recommending small-cap schemes to retail and high net worth individuals (HNIs) as certain fundamental
Their high valuations, to a large extent, capture the potential earnings at least in the near term
Investors need to recalibrate their portfolios now
key reasons distributors have been recommending small-cap schemes: First, the valuation gap between large-sized companies and smallcaps is
higher than the historical average
In the past five years, large-caps had been trading at a 5 per cent premium to small-sized companies
At present, this valuation gap has expanded
Today, large-caps are trading at 34 per cent premium to small-sized companies.
Second, after the reclassification of the scope of
investments of an index, unlike in the past, the small-cap universe has seen the entry of quality names, which offers reasonable scope for
fund managers to spot interesting and profitable ideas
Currently, the small-cap universe is between top 250 and 500 companies by market capitalisation.
Third, historically, it has been observed
that after large-caps turn expensive, the next leg of rally follows in mid-caps and then percolates into smallcaps
Considering these factors, distributors are recommending small-cap schemes with at least a five-year view.
Among small-cap schemes, SBI
Smallcap, Axis Smallcap and L-T Emerging Businesses are top three performers by returns.
Distributors recommend that retail investors should
invest in small-cap schemes through the systematic investment plan (SIP) route
For HNIs, they recommend investing in a staggered manner.
