AMFI m-cap rejig not to drive meaningful churn in fund portfolios: Dhirendra Kumar
The kind of changes that we see right now will not lead to any meaningful churn in fund portfolios.
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ETMarkets.com
The Sebi-mandated six-monthly reclassification of stocks based on market capitalisation leads to churning of portfolios because largecaps cannot remain largecaps forever. Midcaps become largecaps and big companies also go out of favour, says Dhirendra Kumar, CEO, Value Research. Excerpts from an interview with ETNOW.
The last time the reclassification was done by Sebi, it really lead to a degree of churn. How many funds currently need to do a compulsory churn now that the definition of stocks and the names have been completely defined?
No, this is fairly routine. Sebi had earlier mandated six-monthly reclassification of stocks based on market capitalisation. When the classification was done, the basis was that top 100 companies will be acknowledged as largecap, next 150 will be midcap and the remaining smallcap.
Within each category, every fund has a leeway to invest. Largecap funds can have a certain allocation to non-large caps. Likewise, midcap and smallcap funds. Every six months, it is churned because largecaps cannot remain largecaps forever. Midcaps become largecaps and that is the promise of midcaps. Meanwhile, big companies also go out of favour. So, it is revised every six months.
The kind of changes that we see right now will not lead to any meaningful churn in fund portfolios. The churn will happen only if the classification methodology is changed. If the ranking system based on which this classification is made is changed, then the top 150 will undergo some radical change. Otherwise, this is not going to have any meaningful impact because I do not think fund managers will have huge positions in good companies which are going out of favour and slipping from largecaps.
Most of the midcap funds any way have been looking for midcap companies turning into largecaps. Those funds have the leeway. So. I do not think it is going to drive any meaningful churn in fund portfolios.
The last time the reclassification was done by Sebi, it really lead to a degree of churn. How many funds currently need to do a compulsory churn now that the definition of stocks and the names have been completely defined?
No, this is fairly routine. Sebi had earlier mandated six-monthly reclassification of stocks based on market capitalisation. When the classification was done, the basis was that top 100 companies will be acknowledged as largecap, next 150 will be midcap and the remaining smallcap.
Within each category, every fund has a leeway to invest. Largecap funds can have a certain allocation to non-large caps. Likewise, midcap and smallcap funds. Every six months, it is churned because largecaps cannot remain largecaps forever. Midcaps become largecaps and that is the promise of midcaps. Meanwhile, big companies also go out of favour. So, it is revised every six months.
The kind of changes that we see right now will not lead to any meaningful churn in fund portfolios. The churn will happen only if the classification methodology is changed. If the ranking system based on which this classification is made is changed, then the top 150 will undergo some radical change. Otherwise, this is not going to have any meaningful impact because I do not think fund managers will have huge positions in good companies which are going out of favour and slipping from largecaps.
Most of the midcap funds any way have been looking for midcap companies turning into largecaps. Those funds have the leeway. So. I do not think it is going to drive any meaningful churn in fund portfolios.
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