So what did our money managers do with the cash? While a part of it could have been spent in handling redemptions as smallcap schemes recorded an outflow of Rs 94 crore, fresh buying was also recorded in a number of counters.
An analysis of mutual fund data shows that there were 32 smallcaps which saw fresh buying by at least 10 schemes last month. Some of such small wonders have given fabulous returns. Schneider Electric Infrastructure, for example, saw the number of mutual fund schemes investing in it rising from 11 to 19 month-on-month. The stock has nearly doubled so far in the calendar year.
In February, Nuvama Wealth Management had only 1 mutual fund scheme as an investor but at the end of March it rose to 15. The stock is up 44% year-to-date.
Other such winning picks of mutual funds are Action Construction Equipment, Anand Rathi Wealth, Signature Global (India), Chennai Petroleum Corporation and DOMS Industries.
Among other smallcap stocks, significant buying was seen in NLC India, Aavas Finance & Aster DM Health while highest selling was seen in Amara Raja Energy, Bata India and IDFC. New smallcap picks of mutual funds included Gopal Snacks (IPO), Shakti Pumps & Wockhardt while Force Motors, Network 18 and Associated Alcohols were complete exits.
In the last 3 months, mutual funds have been consistently buying Sapphire Foods, Caplin Point Lab, MMTC, IFCI and Praj Industries.
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What should investors do?
While Nifty rose 2% in March, returns were muted for NSE Midcap 100 and NSE Smallcap 100, and they were down 1% and 4%, respectively.
The Nifty is trading at a 12-month forward P/E ratio of 19.4x, which is largely in line with its long-period average (LPA) of 20.3x even as broader markets trade at expensive valuations (the NSE Midcap 100 index trading at ~46% premium to Nifty).
Mutual fund action in the month of March, where investors were most worried about whether the bull market has peaked in smallcaps, shows that it is better to look at individual companies instead of generalizing from aggregate index valuations as the smallcap and midcap space in India is quite wide with large dispersion in earnings growth and fundamentals.
“Many small, mid cap companies have strong businesses with long growth runways, so there is no reason to expect valuation derating as long as they are delivering on expected earnings growth,” said Krishnan VR, Chief of Quantitative Research team at Marcellus.
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)