Where do your Small & Midcap Mutual Fund schemes stand in your portfolio?

 

The current market has led to a significant correction in the mid-cap and small-cap space. In October, the Nifty MidCap100 index and the Nifty SmallCap100 index declined 6.7% and 3%, respectively, and 8.8% and 6.9% from their respective all-time highs.

A nearly 10% drop from their all-time highs reflects a recalibration, but as noted, valuations in this segment still appear elevated by historical standards. The impact has also been reflected in the Mutual Fund space and its high time to reevaluate the investments made in this category and realign the investor's portfolio.

 

1. Top Performers by YTD Returns:
• Bandhan Small Cap: Outstanding YTD return of 39.46%, supported by high Net Equity allocation (92.76%) and a small-cap focus (73.46%).
• Motilal Oswal Small Cap: Achieved a strong 38.02% YTD return. However, it has a relatively lower Net Equity exposure (91%) and higher concentration in small caps (75.18%).
2. AUM Leaders:
• Nippon India Small Cap: The largest fund with AUM of ₹61,027 crore and a balanced allocation to large-cap (11.13%) and small-cap (68.94%) stocks.
• Axis Small Cap: Second-largest fund with ₹23,952 crore AUM, delivering 22.44% YTD returns. It maintains a well-diversified portfolio (86.95% Net Equity).
3. Small-Cap Focus:
• Funds with the highest small-cap allocation include UTI Small Cap (83.86%), PGIM India Small Cap (81.08%), and SBI Small Cap (80.91%).
• These funds generally exhibit higher risk but provide significant upside potential in favorable market conditions.
4. P/E and P/B Metrics:
• Motilal Oswal Small Cap has the highest P/E (42.36), indicating a more growth-oriented portfolio, but potentially higher valuation risk.
• Quantum Small Cap and HDFC Small Cap show lower P/E ratios (25.67 and 24.95, respectively), suggesting relatively undervalued portfolios.
5. Diversification (Number of Holdings):
• Funds like Nippon India Small Cap (224 holdings) and Bandhan Small Cap (182 holdings) are highly diversified, reducing concentration risk.
• In contrast, Motilal Oswal Small Cap (43 holdings) and ITI Small Cap (56 holdings) are more concentrated, possibly leading to higher volatility.
6. Noteworthy Comparisons:
• Quant Small Cap: High YTD return (23.89%) with significant large-cap allocation (22.13%), making it unique among small-cap funds.
• Nifty Smallcap 250 Index: Delivered 23.75% YTD return, serving as a benchmark for fund performance comparison.

Insights for Investors:

• Growth-Oriented Investors: Funds like Bandhan Small Cap and Motilal Oswal Small Cap with high returns and strong small-cap exposure are attractive.
• Diversification Seekers: Nippon India Small Cap stands out with its large AUM, high holdings count, and balanced portfolio.
• Value-Oriented Investors: Funds with lower P/E ratios, such as HDFC Small Cap, might appeal to those prioritizing valuation over aggressive growth.

Scheme-wise Analysis of Small-Cap Funds (as of November 26, 2024):

 1. Bandhan Small Cap Fund

• YTD Return: 39.46% (Highest among all funds).
• AUM: ₹8,716 Cr.
• Portfolio Allocation:
• Small-cap: 73.46%
• Mid-cap: 13.6%
• Large-cap: 5.7%
• P/E Ratio: 23.81 (Low).
• Strengths:
• Strong YTD performance indicates superior stock-picking.
• Relatively balanced exposure to mid-cap and large-cap reduces extreme small-cap concentration risks.
• Considerations: Suitable for investors looking for aggressive growth with moderate diversification.

 

2. Motilal Oswal Small Cap Fund

• YTD Return: 38.02%.
• AUM: ₹2,832 Cr (Small-sized fund).
• Portfolio Allocation:
• Small-cap: 75.18%
• Mid-cap: 11.9%
• Large-cap: 3.92%
• P/E Ratio: 42.36 (Highest, indicating expensive valuations).
• Strengths:
• High YTD return suggests active management in growth-oriented sectors.
• Considerations:
• High concentration risk (43 holdings).
• Expensive portfolio based on P/E ratio.

 

3. Nippon India Small Cap Fund

• YTD Return: 24.88%.
• AUM: ₹61,027 Cr (Largest in the category).
• Portfolio Allocation:
• Small-cap: 68.94%
• Mid-cap: 14.7%
• Large-cap: 11.13%.
• P/E Ratio: 27.78 (Reasonable).
• Strengths:
• Diversified portfolio with 224 holdings.
• Balanced allocation reduces risk.
• Considerations: Suitable for investors seeking stability and consistent returns in the small-cap space.

 

4. SBI Small Cap Fund

• YTD Return: 23.98%.
• AUM: ₹33,107 Cr.
• Portfolio Allocation:
• Small-cap: 80.91%
• Mid-cap: 7.53%
• Large-cap: 5.77%.
• P/E Ratio: 37.28.
• Strengths:
• High small-cap exposure for aggressive growth potential.
• Strong fund house reputation.
• Considerations: Best suited for risk-tolerant investors who prefer high exposure to small caps.

 

5. Quant Small Cap Fund

• YTD Return: 23.89%.
• AUM: ₹26,331 Cr.
• Portfolio Allocation:
• Small-cap: 66.92%
• Mid-cap: 11.95%
• Large-cap: 22.13%.
• P/E Ratio: 35.06.
• Strengths:
• Unique for having the highest large-cap allocation among small-cap funds.
• Lower small-cap exposure provides downside protection.
• Considerations: Suitable for conservative investors wanting exposure to small caps with reduced volatility.

 

6. Axis Small Cap Fund

• YTD Return: 22.44%.
• AUM: ₹23,952 Cr.
• Portfolio Allocation:
• Small-cap: 62.84%
• Mid-cap: 20.17%
• Large-cap: 3.94%.
• P/E Ratio: 36.88.
• Strengths:
• High mid-cap allocation provides better liquidity.
• Considerations: A balanced fund with moderate small-cap exposure for risk-averse investors.

 

7. UTI Small Cap Fund

• YTD Return: 23.91%.
• AUM: ₹4,538 Cr.
• Portfolio Allocation:
• Small-cap: 83.86% (Highest small-cap exposure).
• Mid-cap: 13.47%.
• Large-cap: None.
• P/E Ratio: 35.18.
• Strengths:
• Ideal for investors looking for pure small-cap exposure.
• Considerations: Higher risk due to concentrated small-cap allocation.

 

8. HDFC Small Cap Fund

• YTD Return: 18.91%.
• AUM: ₹33,504 Cr.
• Portfolio Allocation:
• Small-cap: 81.29%.
• Mid-cap: 8.03%.
• Large-cap: 3.89%.
• P/E Ratio: 24.95 (Among the lowest).
• Strengths:
• Lower P/E ratio suggests relatively undervalued portfolio.
• Considerations: Suitable for value-focused investors seeking growth with a lower risk premium.

---

9. PGIM India Small Cap Fund

• YTD Return: 19.23%.
• AUM: ₹1,565 Cr.
• Portfolio Allocation:
• Small-cap: 81.08%.
• Mid-cap: 13.6%.
• Large-cap: None.
• P/E Ratio: 48.54 (Expensive).
• Strengths:
• Focused exposure to small-cap stocks.
• Considerations: Higher valuation risk due to elevated P/E ratio.

---

10. Sundaram Small Cap Fund

• YTD Return: 17.36%.
• AUM: ₹3,450 Cr.
• Portfolio Allocation:
• Small-cap: 85.31% (Second-highest).
• Mid-cap: 6.85%.
• Large-cap: 3.84%.
• P/E Ratio: 28.38.
• Strengths:
• Strong focus on small-cap with relatively low P/E ratio.
• Considerations: Suitable for growth-focused investors comfortable with higher volatility.

---

Summary Table: Fund Highlights

Fund Name	Best for	Key Strength	Risk Consideration
Bandhan Small Cap	Aggressive investors	High YTD return, balanced focus	Mid-cap and large-cap exposure
Nippon India Small Cap	Stability	Largest AUM, well-diversified	Lower small-cap allocation
SBI Small Cap	High small-cap exposure	Strong returns, reputed AMC	Small-cap risk
HDFC Small Cap	Value investors	Low P/E ratio	Moderate small-cap exposure
UTI Small Cap	Pure small-cap investors	Highest small-cap allocation	High concentration risk
Axis Small Cap	Conservative investors	Higher mid-cap exposure	Lower small-cap allocation

This analysis provides insights into fund performance and allocation strategies to help investors choose based on their goals and risk tolerance. Small-cap funds are generally high-risk, high-reward investments. In the current scenario, funds like Bandhan Small Cap and Nippon India Small Cap stand out due to strong returns and diversified strategies. However, the choice of fund should align with the investor's risk appetite, investment horizon, and financial goals.