Midcap and smallcap funds accounted for 87 percent of capital flows in FY24

The Midcap and Small Cap index outperformed Nifty by 28 percentage points and 34 percentage points respectively in FYTD24.

New Delhi: Mid- and small-cap funds accounted for 59 percent of assets under management and 87 percent of cash flows in FY24, according to global brokerage firm Jefferies.

The Midcap and Small Cap index outperformed Nifty by 28 percentage points and 34 percentage points respectively in FYTD24 (i.e. since April 2023), driven by strong inflows into the Mid and Small fund category, which accounted for 87 percent of the total inflow into the Large, Medium, Small, Large and Medium categories combined (FY23 71 percent), the brokerage said.

Assets under management now represent approximately 59 percent of the total assets under management of investment funds in the SMID categories (53 percent in Mar’23). Small Cap funds have seen a much larger increase in their AUM share since the Covid lows, which have increased by 10 percentage points (from 13.9 percent to 23.7 percent) compared to Midcap funds, which have increased by 5 percentage points since then have increased (30.2 percent to 34.8 percent).

The inflow into SMID ceiling schemes is decreasing, but the level of activity is high. While mutual fund outflows into SMID capitalization categories have seen a surge this year, they have gradually started to moderate, with outflows into small-cap funds falling from 71 percent of total inflows in the April-June quarter 23 to 35 percent in January-February. In 2024 this will still be 7 percentage points above the five-year average, according to the brokerage.

Midcap fund flows, on the other hand, have returned to the five-year average of 33.5 percent.

Volume in the Midcap and Small Cap sectors remains high, with Midcap volume against Nifty at its peak in late 2018 and 2022, while Small Cap index volume is well above peak, indicating some potential for more correction due to normalization of volumes, Jefferies said.

“We believe that small/mid cap, which has already undergone a 12 per cent/7 per cent correction from the Feb 24 peak, will see some pain due to the continued regulatory tightening,” the broker said in his report.