Having burnt their fingers in small- and mid-cap shares last year, retail investors have taken a more cautious approach this time: they are playing the mid-cap rally through the mutual fund (MF) route. Market watchers say this could further fuel the rally in second-line stocks, as fund managers will have to deploy the money collected through these schemes, even if it means having to chase prices.As per May figures, renewed inflows and appreciation in portfolio value have boosted the asset base of mid- and small-cap schemes by 18-30%.
"The idea is to invest in these schemes with a very short-term view — say 3-5 weeks. When the investor touches a preset target (about 20-25%), he’ll redeem his investments," said Emkay Global Financial Services wealth management head, Akhilesh Singh.
"Even if the investor pays a 2% exit load for prematurely redeeming his fund investments, he's still making good money. Moreover, the investor is free from traps such as illiquid counters or rigged stocks," Mr Singh added.
Several stock brokers hold the view that even if there is a broader market correction, mid-cap stocks will have more 'price upside' (than their large cap peers) when the market turns around. The BSE Midcap index and BSE SmallCap index have risen 51% and 62%, respectively, over the past one month compared with a 30% rise in the Sensex.
"Expectations that second line stocks could rally further is drawing investors into lower group funds," said Sundaram BNP Paribas Mutual, head-equities, Satish Ramanathan.
"If one considers the impact cost involved in buying midcap stocks, it is much cheaper to have an exposure to a lower group through mutual funds. Lower group stocks have run up quite a bit; we’re expecting the prices to correct in that segment," Mr Ramanathan added.
According to sources, quite a bit of institutional money is flowing into midcap/smallcap funds with a large corpus.
"If one considers the impact cost involved in buying midcap stocks, it is much cheaper to have an exposure to a lower group through mutual funds. Lower group stocks have run up quite a bit; we’re expecting the prices to correct in that segment," Mr Ramanathan added.
According to sources, quite a bit of institutional money is flowing into midcap/smallcap funds with a large corpus.
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