Month: September 2020

SEBI’s Regulation on Multicap Repositioning

SEBI has announced on 11th Sep-2020 that the multicap funds should have 50% allocation towards largecap, 25% in midcap and 25% in smallcap. In the recent days, the multicap variants were moved mostly towards largecap to capture the returns as the smallcap valuations were high. SEBI has given the timeline upto 31st Jan-2021.

As per the ICRA data, The multi cap category AUM is INR 1.36 lac crores barring the Cash holding of 6.73% as of Aug-2020.

The average holding of the largecap,mid & smallcap is here under.

Large cap 68.13%

Mid cap 16.1%

Small cap 9%

If all the AMC’s have to implement the SEBI’s mandate, close to about 32K Crs of shift to happen from large cap stocks to Mid & Smallcap in the next 4 months.

On this, 50% of the movement has to happen from 2 AMC’s namely, HDFC & Kotak

Rest of the 7 AMC’s like Aditya Birla, UTI, Motilal Oswal, SBI, Axis, Franklin & ICICI contribute another 40% of the above AUM.

The AMC’s which follows and true to label or close to the SEBI’s mandate is IDFC, Nippon & Invesco. There are few small AMC’s which could easily move their asset as the volume is less.

If the large AMC’s may buy the smallcap if they wanted to comply the SEBI’s order may impact the market in a big way. Secondly, the smallcap valuations are on the negative and the earnings visibility is very poor, this impact the investors. The objective of SEBI’s investor in mind approach may fail in this case.

The following are the possibility of things that could happen

  1. The Top AMC may seek more timeline to get this executed instead of 4 months a too short period
  2. They may seek SEBI to introduce a new category called Flexicap, where the fund manager have the flexibility to move between large,mid & small cap based on the fund manager’s discretion
  3. They may give a timeline for the investors to withdraw the money, if they are not comfortable changing the category allocation
  4. Merging of multicap with largecap or a thematic as most of the top AMC’s were managing it like a large cap biased

If not, there could be a rally in the mid & smallcap and the largecap may fall due to the above decision by SEBI.

There could be some knee jerk reaction may happen in the market based on this. However, we advise the investors to wait and watch. The SEBI’s interest is always to protect the investors interest.

Team Wealth Ladder