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The second batch of mutual fund stress-test results showed a small improvement in the overall liquidity positions of small-cap funds, as it would take an average of 13.74 days as of March end against 14.03 days in the previous month, to liquidate half of the portfolios of such schemes.
Asset management companies (AMCs) have to disclose data on liquidity, volatility, valuation and portfolio turnover in respect of mid-cap and small-cap equity schemes within the 15th of each month.
While the overall liquidity stance of small-cap schemes is largely in line with the previous results, there are some notable changes at the scheme level.
Tata Mutual Fund’s Small Cap Fund, despite its relatively smaller corpus of around Rs 6,300 crore, had reported tough numbers in the first-ever stress-test results in March. The fund house disclosed that it would take 18 days for the scheme to sell 25 percent and 35 days to sell 50 percent of its portfolio.
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Also read | MF Stress Test Round 2: Have top small-cap funds improved their liquidity positions?
A similar-sized small-cap scheme was reported to take less than one-third the time to liquidate half of the portfolio.
In the latest results, for March, Tata Small Cap Fund showed one of the biggest improvements, as it would now take 29 days to liquidate 50 percent of its portfolio. However, this number still pales in comparison to other similar-sized funds.
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Further, Tata Small Cap Fund would take 15 days to liquidate 25 percent of its portfolio against 18 days earlier.
Apart from this, Canara Robeco Small Cap Fund improved the 50 percent liquidation period for half its portfolio to eight days from 14 days earlier. And a 25 percent liquidation would take four days now against seven earlier. The scheme is among the top 10 small-cap funds with assets under management (AUM) of Rs 9,401 crore.
No alarming trends
According to Nirav Karkera, Head of Research at Fisdom, overall, there are no alarming trends in the latest stress test. Instead, improvements have been observed across the board.
“In the small-cap category, we haven’t seen significant downward changes. Even the largest funds by AUM have only experienced a slight increase of two days to liquidate 50 percent and 25 percent of the portfolio. About, 70 percent of the schemes have either remained stable or shown improvements in liquidity days,” said Karkera.
“The most notable improvements have been observed in Canara Robeco Small Cap and Tata Small Cap Fund. It’s noteworthy that out of the seven small-caps with improved liquidity days for their 50 percent portfolios, four are among the top 10 AMCs by AUM. This indicates that AMCs are ensuring liquidity despite their huge AUMs,” he added.
How big funds fared
It is natural for large small-cap funds to take longer to liquidate their portfolios during market corrections.
In the last results, SBI MF took the highest number of days, 60, to liquidate 50 percent of the portfolio in the SBI Small Cap Fund. Per the latest data, this number improved to 58 days in the latest results.
To sell 25 percent of the portfolio, SBI MF’s fund would take 29 days now against 30 days earlier.
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SBI Small Cap Fund is the third-biggest small-cap scheme, with an AUM of Rs 25,435 crore.
On the other hand, the two biggest schemes, Nippon India Small Cap Fund and HDFC Small Cap Fund, would now take two extra days to liquidate 50 percent of the portfolio. In the earlier results, Nippon India Small Cap Fund (AUM of Rs 45,248 crore) took 27 days to achieve this target, while HDFC Small Cap Fund (AUM of Rs 27,573 crore) took 44 days to liquidate 50 percent of the portfolio.
Other parameters
To show the concentration liability, the Securities and Exchange Board of India (SEBI) asked AMCs to show AUMs held by the top 10 investors of a scheme.
ITI Small Cap Fund (AUM of Rs 1,763 crore), Mahindra Manulife Small Cap Fund (AUM of Rs 3,557 crore) and Motilal Oswal Small Cap Fund (AUM of Rs 1,524 crore), while having a high concentration risk, showed slight improvement.
ITI Small Cap Fund has 21.75 percent with the top 10 investors of the scheme, Mahindra Manulife Small Cap Fund has 14.03 percent and Motilal Oswal Small Cap Fund has a 12.17 percent allocation.
One of the ways to lower risk in a small-cap fund is to have allocation to mid-cap and large-cap stocks.
As per the latest data, Quant Small Cap Fund had the highest allocation to large-cap stocks at 30.52 percent, followed by ITI Small Cap Fund at 14.13 percent and Mahindra Manulife Small Cap Fund at 14.05 percent.
Mid-cap movers
Per the latest results, the biggest mid-cap fund, HDFC Mid-Cap Opportunities Fund (AUM of Rs 60,419 crore), would take 24 days to liquidate 50 percent of the portfolio against 23 days earlier, while, Kotak Emerging Equity Fund (AUM of Rs 39,685 crore) would take 30 days against 34 days earlier. The third biggest fund, Axis Midcap Fund (AUM of Rs 25,536 crore), also improved in terms of liquidation time, as it would take 10 days for the scheme to sell half of the portfolio against 12 days earlier.
Also read | MF stress test, round 2: How did the 10 largest midcap funds do?
“In the case of mid-caps, the stress test results were largely positive. With the exception of one scheme, all others have either seen a decrease or no change in the days needed to redeem 25 percent of the portfolio. A similar trend is observed in the days needed to liquidate 50 percent of the portfolio, with only a maximum increase of one-two days, mostly in schemes with larger AUMs,” said Karkera. “In most cases, there has been either improvement or no change. Another notable trend is the improvement in AUM and liquidity scores for lower AUM funds. Overall, there are no alarming observations in the midcap category, and the situation seems to be improving,” he concluded.