Small-cap funds take a beating

Schemes have delivered an average negative return of 15.7% over the past six months

Over the past six months, while the bellwether indices Nifty and Sensex, have managed to withstand the market turmoil, small-cap indices have been decimated.

After a strong rally in 2016 and 2017, small-cap indices —S&P BSE SmallCap TRI, Nifty Smallcap 250 TRI and Nifty Free Float Smallcap 100 TRI — have plunged 17.5-21 per cent over the last six months.

Nifty 50 index and Sensex have managed a gain of about 2.5 and 4.9 per cent, respectively, in this period.

But a sharp correction in small-cap stocks has been long in the offing.

 

Long coming

The spectacular rally in small-cap stocks over the past two years, sans any solid fundamentals, had led valuations to dizzying heights. That aside, SEBI’s guidelines on mutual funds reclassification have also seemingly triggered profit-taking in small-cap stocks. With these stocks taking a beating, funds focussed on the small-cap category have also had it rough.

The 15 funds in the small-cap category have delivered an average negative return of 15.7 per cent over the past six months.

This has also impacted the funds’ one-year performance. The average category-return over the last one year has been just 2 per cent.

Rejig

SEBI’s reclassification directive has led to some re-jigging of funds within the category, making widespread comparisons difficult. Nonetheless, we look at a few funds that have seen minimal changes in their mandates and portfolio.

Among the 15 schemes, DSP BR Small Cap (erstwhile DSP BR Micro Cap Fund) and Sundaram Small Cap (former Sundaram Small and Medium Indian Leading Equities) have been laggardly, delivering negative returns of 7.8 and 8.5 per cent, respectively, over the past one year. These two funds have nose-dived about 22 per cent over the last six months.

Interestingly, SBI Small Cap (earlier SBI Small and Midcap Fund) has managed to gain 13 per cent over the past one year, despite plunging by 20.5 per cent in the last six months.

HDFC Small Cap Fund has outperformed its peers, delivering 16 per cent in the past one year and falling by a lower 8.5 per cent over the past six months. IDBI Small Cap and Franklin India Smaller Companies funds have also managed to cap their losses, falling 10.5 per cent over the past six months. Although some funds have restricted their downside well, the small-cap segment could remain under pressure for a while.

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