Smallcaps desi fund managers love & the ones they bought after crash

Smallcaps are yet to see any respite from selloff despite the record-chasing run of benchmark Sensex and Nifty. This is best reflected in the performance of smallcap-oriented equity funds.

Smallcap funds (down over 6 per cent on an average) have been the worst performers in last three months, followed by the funds focussed on the infrastructure sector (down 5.50 per cent), international opportunity (down 1.82 per cent) and midcaps (down 0.21 per cent).

Despite their underperformance, some 450 smallcap stocks figure prominently among the favourites of domestic mutual funds.


The biggest gainer among them is Merck, which has rallied 113 per cent so far in 2018. The scrip features in the portfolios of HDFC Smallcap Fund, Sundaram Select Micro Cap and IIFL Focused Equity Fund as of July 2018.

NIIT Technologies (up 104 per cent) next on the list and is held by UTI Focussed Equity Fund, Reliance Small Cap Fund, Tata Ethical Fund and Principal Focused Multicap Fund.

Among others, V-Mart, Muthoot Capital Services, VIP Industries, KPIT Technologies, First Source Solutions, Zensar Technologies, Astrazeneca Pharma, Intellect Design, Tata Elxi, Mastek, HIL, Orient Refractories, WPIL, Radico Khaitan, Emami Paper Mills, Zydus Wellness, Vinati Organics, Phillips Carbon Black, JK Paper, Garware Technical Fiber, Rajratan Global Wire and Sonata Software are smallcap stocks owned by at least two mutual fund schemes as of July end.

These stocks have gained in excess of 30 per cent on a year-to-date (YTD) basis till August 17. Companies with market capitalisation less than Rs 10,000 crore as of August 17 were classified as smallcaps for this writeup.

In terms of popularity, V-Mart Retail stood out, being part of portfolios of an entire batch of schemes such as Aditya Birla Sun Life Regular Saving Fund, Baroda Pioneer ELSS96, Invesco Multicap Fund, IDFC Sterling Value Fund, BOI Axa Mid & Small Cap Equity & Debt Fund, IDBI Small Cap Fund and ICICI Pru S&P BSE 500 ETF.

VIP Industries came next, with presence in the portfolios of Aditya Birla Sun Life Small Cap Fund, Canara Rob Equity Tax Saver Fund, Franklin India Smaller Cos Fund, LIC MF Tax Plan, Invesco Contra Fund, Reliance Smallcap Fund and ICICI Pru S&P BSE 500 ETF.

Other smallcaps such as Talwalkar Better Value Fitness (down 90 per cent), Vakrangee (down 89.28 per cent), KSK Energy Ventures (down 85 per cent), Jyoti Structures (down 80 per cent), Kwality (down 79 per cent) and PC Jeweller (down 79 per cent) were among the favourites of many mutual fund schemes as of July 2018, but each one of them has eroded wealth so far in 2018.

It is possible that mutual funds have picked up some of these stocks recently after continuous hammering since the start of the calendar year brought them down to attractive levels, creating value buying opportunities.

For instance, Talwalkar is among the key holdings of Aditya Birla India GenNext Fund, Aditya Birla SL CPO Fund-Sr 30, Aditya Birla SL Dual Advantage Fund and Aditya Birla SL CPO Fund-Sr 29, while Vakrangee featured prominently among the portfolio holdings of Motilal Oswal Midcap 100 ETF, ICICI Prudential Midcap Select ETF, ICICI Prudential S&P BSE 500 ETF.

KSK Energy was part of ICICI Pru Midcap Fund, ICICI Prudential Infrastructure Fund, HDFC Infrastructure Fund and ICICI Prudential India Recovery Fund as of July end.

Little-known Easun Reyrolle had investments from ICICI Prudential Infrastructure Fund and HDFC Infrastructure Fund as of July 2018, but the stock is down more than 60 per cent year to date.

“Midcaps and smallcaps, which had been beaten down since the start of the year, are seeing some traction, as mutual funds and other investors have started accumulating value picks. The fear and pessimism have created good opportunity in a few pockets for value investors. However, one must be cautious, because the kind of volatility and valuations that largecaps are commanding is unprecedented. One must go shopping cautiously and not pick up all the beaten-down midcaps and smallcaps blindly,” says Jimeet Modi, founder & CEO of SAMCO Securities, StockNote.

Nitasha Shankar, Senior VP, Research, Yes Securities, said the Nifty has been running up because of select stocks. “If you look outside this space, there has actually seen quite a good beating down. So, valuations have become extremely attractive in that space, both midcap and smallcaps, wherein you can pick up good stocks, especially in the consumer, retail and agri segments,” she told ETNow.