Investing in small-caps is not a sprint, it’s a marathon, says Nippon India Mutual Fund’s Samir Rachh
Nippon India Mutual Fund manages the largest small-cap fund of the country with assets under management of nearly Rs 32,000 crore; it has paused fresh lump sum investments in the scheme
- Aug 2, 2023,
- Updated Aug 2, 2023 1:03 PM IST
Small-cap funds have been in vogue, with inflows into these schemes touching new highs over the past few months. Data from industry body Association of Mutual Funds in India (AMFI) shows that net inflow in small-cap funds was pegged at a record Rs 5,472 crore in June, bettering the Rs 3,282-crore recorded the previous month.
This assumes significance as the record flows in the small-cap schemes came even as popular equity categories like large-cap funds, flexi-cap funds, equity-linked savings schemes (ELSS) and focused funds all witnessed net outflows during the month.
Fund managers, however, are wary of deploying more money in the small-cap universe and some have even stopped accepting fresh lump sum investments in such schemes, though existing flows through systematic investment plans (SIPs) are being allowed.
Samir Rachh, Fund Manager–Equity, Nippon India Mutual Fund, manages the largest small-cap fund in the country with assets under management of nearly Rs 32,000 crore. He believes there is euphoria in this space and record flows in small-cap schemes are only further fuelling the price rise.
More importantly, Nippon MF has put a temporary pause on fresh lump sum investment in these funds citing the recent sharp rally in small-cap stocks. Incidentally, the BSE SmallCap index is up nearly 22 per cent while the benchmark Sensex has gained a little over nine per cent.
“The step was warranted considering the recent sharp rally in the small-cap space and increased investor participation through high ticket investments. We thought it’s in the best long-term interest of investors in the fund so that the money comes in a more calibrated manner,” says Rachh.
Interestingly, the fund manager believes that investing in the small-cap space requires a different temperament with a long-term outlook and investors should be mentally prepared to see sharp temporary falls in values if something goes wrong with the markets.
“Small-cap investing is not a sprint; it is a marathon… It’s very important to ensure that money, which is flowing in, has that kind of long-term outlook and ability to withstand those risks… There is clear rush to get in and it’s also reflected in rising impact cost. Fast rising markets are certainly not the best time to invest in small-caps,” explains Rachh.
He further highlights the fact that small-cap stocks are comparatively less liquid and have high impact cost and hence the size of fund does create its own challenges.
One needs to navigate very carefully in the bull markets and hence it is one of the reasons we wanted to moderate flows in the bull market, he says.
He, however, firmly believes that the markets will see rebalance itself and good attractive investment opportunities will emerge.
“Currently we are in sort of euphoria in small caps. Markets have their own balancing mechanisms and that would ensure that there would be better opportunities to deploy funds. Also supply of paper is huge it will also bring some good opportunities to deploy these flows,” he says.
Small-cap funds have been in vogue, with inflows into these schemes touching new highs over the past few months. Data from industry body Association of Mutual Funds in India (AMFI) shows that net inflow in small-cap funds was pegged at a record Rs 5,472 crore in June, bettering the Rs 3,282-crore recorded the previous month.
This assumes significance as the record flows in the small-cap schemes came even as popular equity categories like large-cap funds, flexi-cap funds, equity-linked savings schemes (ELSS) and focused funds all witnessed net outflows during the month.
Fund managers, however, are wary of deploying more money in the small-cap universe and some have even stopped accepting fresh lump sum investments in such schemes, though existing flows through systematic investment plans (SIPs) are being allowed.
Samir Rachh, Fund Manager–Equity, Nippon India Mutual Fund, manages the largest small-cap fund in the country with assets under management of nearly Rs 32,000 crore. He believes there is euphoria in this space and record flows in small-cap schemes are only further fuelling the price rise.
More importantly, Nippon MF has put a temporary pause on fresh lump sum investment in these funds citing the recent sharp rally in small-cap stocks. Incidentally, the BSE SmallCap index is up nearly 22 per cent while the benchmark Sensex has gained a little over nine per cent.
“The step was warranted considering the recent sharp rally in the small-cap space and increased investor participation through high ticket investments. We thought it’s in the best long-term interest of investors in the fund so that the money comes in a more calibrated manner,” says Rachh.
Interestingly, the fund manager believes that investing in the small-cap space requires a different temperament with a long-term outlook and investors should be mentally prepared to see sharp temporary falls in values if something goes wrong with the markets.
“Small-cap investing is not a sprint; it is a marathon… It’s very important to ensure that money, which is flowing in, has that kind of long-term outlook and ability to withstand those risks… There is clear rush to get in and it’s also reflected in rising impact cost. Fast rising markets are certainly not the best time to invest in small-caps,” explains Rachh.
He further highlights the fact that small-cap stocks are comparatively less liquid and have high impact cost and hence the size of fund does create its own challenges.
One needs to navigate very carefully in the bull markets and hence it is one of the reasons we wanted to moderate flows in the bull market, he says.
He, however, firmly believes that the markets will see rebalance itself and good attractive investment opportunities will emerge.
“Currently we are in sort of euphoria in small caps. Markets have their own balancing mechanisms and that would ensure that there would be better opportunities to deploy funds. Also supply of paper is huge it will also bring some good opportunities to deploy these flows,” he says.