In June, the small cap mutual funds reported an addition of 6. 9 lakh folios, the highest monthly addition for an equity fund segment after excluding sector reclassification impact of multi cap funds in January and February 2021. According to data from the Association of Mutual Funds in India (AMFI), cumulative folio addition over the past three months in this category was 13. 7 lakh, accounting for 53% of the total folio addition in the equity segment.
In addition to the lure of valuation gap with large-caps, there are two more factors which have triggered interest in small-cap companies.First, select small-cap stocks have delivered higher returns than benchmark indices. The BSE SmallCap index has gained 18% whereas the benchmark Sensex has gained 10% year-to-date. Second, due to the market-cap categorisation limit, some niche companies have found a place in the small-cap segment. Savvy investors have found value in select companies in defence and pharmaceuticals sectors.
The share of the small-cap folios in the total equity folio increased 269 basis points to 12.2% in June 2023, highest growth among all equity fund categories. The equity folio count was at a record high of 10 crore at the end of the month.
Investment flow in small-cap funds was equally upbeat. Of the total inflow of Rs 18,358 crore in equity funds, about two-thirds was in small-cap funds. As a result, the gross buy-to-sale ratio in the small-cap funds rose to 3.9 in June, the highest among all sector funds. The ratio for overall equity funds was 1.3.
