The stock market tumble in over a month has prompted some small cap mutual funds to restart accepting lumpsum investments after a while, reports The Economic Times.
DSP Small Cap and SBI Small Cap had stopped accepting bulk investments since February 2017 and October 2015, respectively as steep valuations in these shares had made it tough for them to deploy inflows.
But, following the sell-off in these shares since January 2018, which steepened in the past one month, valuations have turned cheaper, which has given confidence to these fund houses to restart flows.
Since these funds have stopped lumpsum flows, they have accepted only staggered investments like systematic investment plans (SIPs) or systematic transfer plans (STPs). DSP Small Cap Fund manages assets of roughly Rs 5045 crore and and SBI Small Cap Fund's assets are worth about Rs 3476 crore. SBI small Cap Fund will allow bulk inflows from March 30 and will only accept lumpsum investments till it mobilises Rs 1000 crore. DSP Small Cap will begin on April 1 but has not specified a target.
“Our small cap portfolio consists of companies that are leaders in their business with the portfolio ROE at 17%. In the current scenario, there is an opportunity to pick up significant weights in companies we like,” says Kalpen Parekh, President, DSP Mutual Fund. The DSP Small Cap fund has seen its portfolio price to earnings (PE) fall from a high of 29 times in January 2018 to 19 now, while its price to book fell from 3.8 times to 2.7.
“Many HNIs are looking to allocate to small cap funds since valuations the space are down by 50-70%,” says DP Singh, Executive Director, SBI Mutual Fund.
The performance of small cap funds have been volatile with the value of 7 out of 15 falling over the past five years.
Many small cap stocks are illiquid and in the bull market, it is difficult for a fund manager to accumulate the desired quantity of his favorite company without the stock price going up. With the markets battered, investors are focusing more on large caps, which has given fund managers an opportunity to buy big chunks of the better small-cap stocks
THE S&P BSE250 Small cap Index is down 40% from February 7. In the last one year, it has lost 43%. In this period, small cap funds have lost 29.57%, as per data from Value Research.