Red-hot favourites! MF & PMS managers handpick 10 new smallcaps

With the broader market outrunning the Nifty rally by a wide margin in the last few weeks, money managers handling mutual funds and PMS schemes chose Equitas Small Finance Bank, Birla Corporation and Sanofi India as the top new smallcap picks last month.

Multibagger smallcap Equitas SFB, whose shares have rallied 133% in the last one year, was picked by 9 mutual fund schemes, 10 PMS, 13 ULIP funds and one AIF in May, shows data pulled from the records of Finalyca by PMS Bazaar.



MP Birla Group firm Birla Corporation saw 16 schemes showing fresh interest while Sanofi India was picked by another 15 schemes. Other smallcap picks include Indiamart Intermesh, Affle India, VIP Industries, Indiamart Intermesh, Birlasoft, Can Fin Homes, PVR Inox and Exide Industries.

At an overall level, Zee Entertainment Enterprises (ZEEL) is the most widely owned smallcap for MFs, followed by Ipca Lab, PVR Inox, Gland Pharma and JB Chemicals.

During the month, fund managers raised stakes in Brigade Enterprises, Can Fin Homes, Amber Enterprises, CreditAccess Grameen, Equitas SFB, Birlasoft, Gujarat State Petronet, IDFC, PNC Infratech, KIMS, Affle India and Sapphire Foods.

On the other hand, ZEEL saw most of the selling amid regulatory troubles. Fund managers were also seen taking bearish stances on PVR Inox, Ipca Lab, JB Chemicals and Gland Pharma.

Amid sectoral churning, the broader market has been outperforming. While Nifty is up just over 3% in the last one month, Nifty Midcap has rallied 8.5% and Nifty Smallcap 9.5%.

Analysts say the smallcap space is looking attractive now from a valuation standpoint as well as the earnings growth expectation.

Harjeet Singh Arora, Managing Director, Mastertrust, suggests avoiding firms with high price-to-earnings (PE) ratios and weak fundamentals.

"When investing in small and midcap firms, a thorough grasp of the economic cycle is important. One may choose the best times to enter the market by being aware of how industries cycle. This strategy promotes prudent investing practices, aligns investment choices with the dynamics of the economic cycle, and reduces risks while increasing the possibility of obtaining favourable returns," he said.

Domestic brokerage firm Prabhudas Lilladher has picked Apar Industries, Aster DM Healthcare, Chalet Hotels, Nazara Technologies, Prince Pipes and Fittings, PVR Inox and VIP Industries among its top picks in the smallcap space.

"We continue to believe that Capital Goods, Defence, QSR, Retail, Travel and Hospitals are structural themes. Domestic demand centric segments like FMCG, Auto, building materials etc will gain traction as cooling off inflation revives demand in rural India and bottom end of urban India," it said.

Axis Securities is overweight on telecom, speciality chemicals, banks and auto stocks. Top smallcap picks include Mahindra CIE Automotive, Praj Industries, CCL Products, CreditAccess Grameen and PNC Infratech.

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)