Small & midcap outflows rise: Where is smart money moving? Sanjay Shah answers

After a period of heavy selling in small and midcap stocks, investors are now re-evaluating their investment strategy. With retail investors holding firm despite market volatility, the focus is shifting towards balanced advantage funds, multi-asset allocation, and largecap schemes, according to Sanjay Shah, CMD at Prudent Corporate, who recently spoke to ET Now about the latest investment trends.

While small and midcap stocks have seen significant volatility in the past few months, retail investors have not rushed to redeem their holdings. Shah noted, "Frankly, retail level pain has not come yet, retail has not redeemed at all. So, it is very difficult to say whether the pain will come back or not."

However, he cautioned that as the market recovers, some investors may book profits, leading to gradual redemptions in small and midcap funds.

Where Is the new money flowing?

With investors seeking stability over high-risk bets, there has been a clear shift away from small and midcap stocks. Shah highlighted that incremental investments are now favoring balanced advantage funds and multi-asset allocation schemes over small and midcap categories.

"The allocation will continue to be towards non-small and non-midcap category... incremental money will not go into small and midcap," he stated.

Notably, largecap schemes have also started seeing inflows over the past three to four months, reflecting a more cautious approach among investors. "Money has started coming into large-cap stocks in the last 3-4 months as well," Shah pointed out.

ELSS gaining momentum for tax planning

As the financial year-end approaches, a significant portion of new money is moving into Equity-Linked Savings Schemes (ELSS) for tax-saving purposes.

According to Shah, "A lot of money will go towards the ELSS category for tax planning perspective." However, within ELSS, a substantial 30-35% allocation still goes into small and midcap stocks, making it a unique investment avenue balancing tax benefits with exposure to high-growth segments.

What about New Fund Offers (NFOs)?

NFOs had witnessed strong investor participation earlier, but over the last two to three months, new launches have slowed down. Shah remarked, "I think of lately NFO nahi hai. I think last two-three months the NFO has dried down." This suggests that investors are now focusing on existing diversified funds rather than chasing new thematic offerings.

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Market outlook and SIP trends

While Systematic Investment Plans (SIPs) remain a popular mode of investing, February saw an increase in SIP closures, hinting at cautious investor sentiment. "Historically, if I had 10 SIPs, around 4 would close. In February, that number has gone up to 6.5 or 7," Shah revealed. This suggests that some investors are pausing contributions amid market fluctuations, though overall SIP flows remain strong.

Looking ahead, Shah expects SIP flows to stabilize in the Rs 25,000-26,000 crore range, keeping investment momentum steady in the coming months.

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