The current year 2017 has been one of the best year for smallcaps, as evidenced by the rise in BSE smallcap index which is up by more than 58% since January. While this may seem eye-popping, a few stocks in the index such as Indiabulls Ventures, HEG, Graphite India and Avanti Feeds have had a dream run at the bourses. IndiaBulls Ventures has given a staggering 1,182% in the year so far, while HEG is up by more than 1,382% since January. Further, Graphite india has given 830% in the year, Avanti Feeds is up by more than 410% in the year.
In its latest Financial Stability Report, RBI says that the Indian investors have shown an increasing preference to midcap and smallcap stocks in the last two years. “Another important feature of the evolution of Indian equity markets is investors’ increasing interest in small cap and mid-cap securities over the last two years as seen from a significant increase in turnovers in beyond top 100 scrips in 2016-17 over the previous financial year,” the report says. We take a look at two mutual funds which have returned more than 60% since January.
Reliance Smallcap Fund
This fund has returned more than 62% in the year so far, making it one of the best performing funds in the category. A three star rated fund according to Value Research, the fund has beaten the benchmark on a 1-year, 3-year and 5-year basis. The fund has taken heavy allocation to the shares of VIP Industries, Seya Industries, Tejas Networks and Apex Frozen Foods. “The primary investment objective of the scheme is to generate long term capital appreciation by investing predominantly in equity and equity related instruments of smallcap companies and the secondary objective is to generate consistent returns by investing in debt and money market securities,” says the fund’s website. The regular scheme of the fund has an expense ratio of 2,01% as on November 30th 2017.
HDFC Smallcap Fund
This fund has returned more than 60% since January. Notably, the fund has taken heavy exposure to the shares of Dilip Buildcon, Carborundum Universal, Aarti Industries and KEC International. “To provide long-term capital appreciation by investing predominantly in smallcap and midcap companies” reads the investment objective of the fund. The fund has an exit load of 2.43% as on 30th November 17.
According to Shankar Sharma of First Global, the rally in smallcaps is far from over. “I made a distinction long time back that forget about largecaps, and smallcap is the space where one needs to go. But, interestingly after huge outperformance, I don’t think that smallcaps are in a mature bull market,” Shankar Sharma told in an interview to CNBC TV18 in October this year.
Contrary to popular belief, Shankar Sharma says that the bull-run in small caps is still very young. “The small-caps have just barely cleared their 2008 highs. I think 2008 high was taken out three months back. So it is not as if it is a jaded or a tired bull market. The bull market and small-caps is still very, very young. In fact, it has just kind of started because you were here in 2008, you fell all the way here, you went back to 2008 and now you have just taken out. We will talk a bubble when it is doubled from here not when it has just reached a level of 10 years back,” the expert said in an interview to ET in October.