Small cap stocks post biggest single day jump in 6 years after SEBI circular

Agencies
September 15, 2020

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Mumbai, Sept 15: The small cap index posted its biggest single day gain in over six years on Monday after the SEBI circular on multi cap mutual funds triggered buying.

The estimates by analysts and brokerage houses indicate that the net inflow from large caps would be around Rs 27,000 crore into the small caps and around Rs 13,000 crore into the mid caps following the SEBI circular to invest 25 per cent each of assets of multi cap funds into large, mid and small cap stocks.

The huge rally in small cap stocks has come even after fund managers asked investors not to rush to buy small cap stocks in haste and there were clarifications that mutual funds have several options apart from rebalancing their schemes including a merger of schemes to comply with the circular.

Siddhartha Khemka, Head - Retail Research, Motilal Oswal Financial Services said mid-cap and small cap stocks gained sharply.

He said investors were attracted towards Mid/small caps due to the SEBI mandate to Multicap mutual funds to invest a minimum of 25 per cent each in large, mid and small cap stocks. Small Cap Index posted its biggest 1-day gain in over six years.

Deepak Jasani, Head of Retail Research, HDFC Securities said that the recent SEBI circular on allocation by Multicap schemes spurred buying in a lot of small and midcaps in anticipation of fund buying that could emerge later to adhere to the new regulation. The Nifty midcap index ended 2.6 per cent higher while the smallcap index gained 5.6 per cent - the most since May 2014.

Nifty has ended the first day of the week in the negative while the broader market has reacted positively to the latest SEBI circular, he added.

In a note to investors, Sage One has said that SEBI had done a big re-categorization of mutual funds (MFs) in early 2018 which triggered initial rotation from small/midcaps to large caps, and the falling prices created their own snowball effect resulting in the small cap universe correcting by 40-60 per cent. During this period the large cap indices delivered positive returns. In the latest re-categorization of multi-cap MFs, a small part of the 2018 action has been reversed.

As per the note, institutional shareholding (SH) in large cap space is currently 20 per cent above the December 2017 levels whereas it's 41 per cent lower for the small cap space.

The total institutional holding has increased by 10 per cent during this period. Small cap companies make up 10% of the total market capitalization, but the institutional holding is only at 5.3 per cent of their total holding. In December 2017 small cap companies made 16 per cent of the total market capitalization. The biggest contribution in the market drop was the forced selling by the domestic institutions. As prices dropped, it forces other investors to move out and seek performing asset classes such as the large caps, the note said.

The note said that whether MFs actually do the entire re-allocation or whether they merge their multi cap schemes into the large cap schemes is an unknown.

"Irrespective of the amount that actually gets re-allocated, just the anticipation could bring in fresh capital in small/mid cap schemes under MFs, PMS' and AIFs. It doesn't take much inflow to move stocks in this universe," the note said.

The research notes that the impact cost of actual exits was as high as 15 times in the small cap space. This means that if one was to invest fresh capital of Rs 1,000 crore in the small cap companies, on an average their market cap would go up by Rs 15,000 crore. There will not be enough sellers available when the expectation is that this space would do well in presence of forced buyers.

"Even if we assume that only half (Rs 13,500 crore) the capital would be re-allocated by the MFs and assume that there will be no fresh inflows in the small cap companies by other investors and in addition even if we assume that the buying impact would be half (7.5x), the increase in the market cap of the small cap universe would be more than Rs 1 lakh which is around 36% increase in total market cap (currently Rs 2.80 lakh crore) of the small cap companies," the research said.

This step would benefit more than 1000 companies compared to just 100 companies that benefited by the 2018 circular. In an environment when debt raising is multiple times difficult for the smaller companies, this SEBI triggered change would help equity raising capability of these companies.

HDFC Securities said in a note that given the size of multicap funds and higher allocation especially to smallcap stocks; some concerns have been raised about achieving the prescribed investment limits without creating a bubble in small and midcap stocks.

The AUM of smallcap stocks across equity categories (excluding sectoral) as on July 2020 is Rs 68,109 crore – compare this with Rs 28,000 crore worth fresh buying required.

"These stocks have less free float availability, relatively lower volumes, corporate governance issues and higher impact cost (both at the time of getting in and getting out). Also, liquidity issues in smallcap stocks could get compounded in bear markets when these funds face redemption pressure and are required to sell small cap stocks where impact costs could be large," it said.

Schemes requiring the least reshuffling include multicap funds from Invesco, IDFC and Nippon, while schemes requiring the most reshuffling include Kotak Standard, HDFC Equity, Motilal Multicap 35, Axis and Canara Robeco Eq diversified fund, HFDC Securities said.

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News Network
November 11,2024

Mangaluru: Six youths including teenagers have been arrested by the Bantwal Rural Police in connection with a brutal assault on 21-year-old Aboobakar (name changed to hide identity), an incident that was widely shared on social media after footage revealed the victim tied to a pole and violently beaten.

The arrested individuals, all from Kanchinadkapadavu, Sajipanadu village in Ullal Taluk, have been identified as Mohammad Sapwan (25), Mohammad Rizwan (25), Irfan (27), Anis Ahmad (19), Nasir (27), and Shakeer (18). According to police reports, the assault took place on November 7 in Kanchinadkapadavu.

The sequence of events began when Aboobakar was reportedly called to a residence in Kanchinadkapadavu by a female relative. Upon his arrival, he was confronted by the accused, who questioned his presence, tied him to a pole with ropes, and attacked him while he was shirtless. 

Aboobakar managed to file a police complaint the following day, detailing the assault. As his injuries worsened, he was admitted to a private hospital in Mangaluru.

While in the hospital, Aboobakar alleged that his attackers intended to kill him during the assault. This statement led to additional charges of attempted murder being filed. 

Police officials stated that the suspects were subsequently apprehended, charged with group assault and attempted murder, and placed in judicial custody. The investigation is ongoing, and further details are awaited.

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News Network
November 21,2024

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After the US prosecutors charged Gautam Adani with bribery and fraud, Congress reiterated its call for a Joint Parliamentary Committee (JPC) probe into the transactions of the Adani group, and hit out at Prime Minister Narendra Modi, alleging an "internal nexus" between him and "his favourite businessman."

Senior Congress leader Jairam Ramesh said the indictment of Gautam Adani and others by the US Securities and Exchange Commission validates his party’s call for a Joint Parliamentary Committee investigation.

The Congress has been pushing for the probe since January 2023, raising concerns over alleged irregularities involving Adani and his business dealings, said Ramesh.

Ramesh referred to the party’s “Hum Adani ke Hain” series, where 100 questions were raised about the alleged scams and the links between Prime Minister Narendra Modi and Gautam Adani.
He noted that the questions remain unanswered, reiterating the need for accountability in the matter.

The US prosecutors have charged Adani with deceiving investors by concealing information about his firm's solar energy project in India, which allegedly involved bribery.

Adani has been charged with securities fraud and conspiracy, according to an indictment unsealed on Wednesday. The case focusses on an agreement between Adani Green Energy Ltd. and another organisation to supply 12 gigawatts of solar power to the Indian government.

'BETRAYAL OF INDIAN INVESTORS'

Congress leader Pawan Khera described the allegations against Gautam Adani and his conglomerate as a “betrayal of Indian investors.”

Taking to X, Khera outlined the US charges, including claims that Adani’s group bribed Indian government officials between 2020 and 2024 to secure contracts. Citing media reports, he also pointed out that Gautam Adani personally met a government official to advance the scheme.

Khera referred to a March 2024 incident where the Adani Group allegedly misled the Bombay Stock Exchange and the National Stock Exchange, calling it a “grave violation of investor trust.”

He further highlighted a March 2023 FBI raid on the premises of Sagar Adani, Gautam Adani’s nephew, where electronic devices were seized as part of the investigation.

'SEBI NOT ABLE TO PROVE ANY CHARGES AGAINST ADANI'

Shiv Sena (UBT) leader Priyanka Chaturvedi criticised central probe agencies following US charges against Gautam Adani and others in an alleged bribery case linked to solar energy contracts.

Chaturvedi raised concerns about corporate governance and regulatory oversight in the country. “They talk about corporate governance, responsibility, and accountability. The industrialists should be asked to follow the rules and regulations, but even the agencies were defending him. The SEBI has not yet been able to prove charges against him,” she said, pointing to what she viewed as failures in ensuring accountability.

'BROUGHT DISREPUTE TO INDIA'

On US charges against Gautam Adani, AAP leader Sanjay Singh called for a probe against the industrialist. He said that the probe should be conducted by an investigation agency under the Supreme Court.

"Adani Group has brought disrepute to India. This is a very serious matter. The PM of India should come forward and answer this. All the pending matters against Adani should be probed by an investigation agency under Supreme Court monitoring, and all the corruption done by him, within and outside the country, should come out before the country and action should be taken against him," he said.

BJP DFENDS

BJP IT cell chief Amit Malviya responded sharply to the Opposition’s criticism regarding allegations involving Adani Green Energy and US-based Azure Power. He pointed out that the charges in the indictment are only allegations and emphasised, “The defendants are presumed innocent unless and until proven guilty.”

Malviya argued that the crux of the case concerns agreements to supply 12 GW of power to the Solar Energy Corporation of India (SECI), contingent on SECI securing power purchase agreements with state electricity distribution companies (SDCs).

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News Network
November 11,2024

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Udupi, Nov 11: The Karkala town police in Udupi have arrested Krishna Naik, the sculptor responsible for installing a 33-foot Parashurama statue at Umikkal Hill in Bailur, Karkala taluk. 

Naik, the owner of Krish Art World and a resident of Bengaluru's Visvesvaraya Layout, was apprehended in Mahe, part of the Union Territory of Puducherry, for allegedly substituting a look-alike statue in place of a genuine bronze figure at the Parashurama Theme Park in Karkala.

Udupi Superintendent of Police Dr. Arun K confirmed the arrest, stating that Naik faces charges under Sections 420 (cheating) and 409 (criminal breach of trust) of the Indian Penal Code. 

This legal action followed a complaint lodged in June by Krishna Shetty, a resident of Nallur village, Karkala. Shetty claimed that Naik had received a payment of ₹1,25,50,000 from Udupi Nirmithi Kendra for the installation of a bronze Parashurama statue. However, Naik allegedly deceived the government by installing a replica instead.

The statue was unveiled on January 27, 2023, by then Chief Minister Basavaraj Bommai. Current Chief Minister Siddaramaiah has since ordered a CID investigation to probe deeper into the alleged fraud surrounding the statue's installation at the theme park.

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