MFs investing in small cos clock big gains

Now it is the turn of Mutual Funds to follow my principle/footsteps of Investing in Mid and Small/Micro Caps (mainly) for superb gains. I have penchant for this section because of the availability of less research material in the public domain, making them "Virgin" for investment

CHENNAI: While many large-cap stocks with over Rs 10,000 crore in market capitalisation have led the bull rally, mutual funds invested in mid-cap and small-caps have landed stellar gains riding on stock performance.

A quick look at around 35 mutual fund schemes, that are known to have invested in smaller companies shows that the average fund’s net asset value (NAV) has appreciated 90% in the last three months.

Topping the charts is SBI Magnum Midcap Fund having managed to gain 127% gains in the last three months. Others funds, such as JM Emerging Leaders , JM Small & Mid-Cap, SBI Magnum Sector Umbrella-Emerging Businesses, Principal Junior Cap, Sundaram BNP Paribas Select Midcap, Principal Emerging Bluechip, Canara Robecco Emerging Equities, DSP BlackRock Micro Cap and Sahara Midcap Fund have doubled their NAVs in the space of just 90 days, AMFI data till June 3 shows.

“When markets have momentum, mid-caps tend to outperform. Even when markets are range-bound , mid-caps still perform reasonably well compared to larger companies. The only thing that could stall their rise would be 10-15 % correction. I don’t see any India-specific factor that would bring down the indices by that much,’’ Vivek Pandey, fund manager, SBI Magnum Midcap Fund, said.

Others such as Birla Sun Life Mid Cap, DBS Chola Midcap, DBS Chola Small Cap, Franklin Indian Smaller Companies, JM Mid Cap, Sundaram BNP Paribas Select Small Cap and ING Midcap have given returns between 80% and 90% in the same period.

Even the laggards have managed to deliver 60-65% returns in the last three months. With benchmark indices mainly consisting of large caps and most stocks having delivered returns at the start of a bull run, smaller companies maintain rally in the next wave, point out analysts.

“It is interesting to note that while large caps typically go into consolidation mode after a strong monthly performance (May), the tailwind in the case of midcaps seems to be substantially better. This trend could be likely attributed to a contraction in the valuation gap as investor sentiment improves,’’ Bharat Iyer of J P Morgan India said.

The presence of performing stocks as top-10 holdings that gave 100% returns such as Federal Bank, Balrampur Chini Mills, Bank of Baroda, Rural Electrification Corporation, Mphasis BFL, Mundra and stocks that ‘tripled’ in value such as Voltas and Sintex Industries in the same period widened gains for many funds. In the same period, BSE Midcap Index has appreciated by 100% and BSE Small Cap Index has jumped by around 110%.