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Cyclicals, financial stocks may dominate upcoming AMFI rejig despite volatility, defensives to be downgraded

AMFI publishes a list of stocks, classifying them under the Largecap, Midcap, and Smallcap categories based on their average market capitalization between January and June.

The brokerage firm believes growth, quality and defensive stocks might be downgraded. (Image: REUTERS)

Association of Mutual Funds in India (AMFI) is due to publish its fresh list of stock classification soon. The list will be based on the market capitalization of listed companies between January and June 2022 —  a period that has been marred by heightened volatility. “Surprisingly, the type of stocks that will get upgraded (from small to midcap and mid to largecap) do not indicate a risk-off environment as most of them belong to cyclical and capital intensive sectors such as financials and industrials,” ICICI Securities said in a note. The brokerage firm believes growth, quality and defensive stocks might be downgraded. 

AMFI publishes a list of stocks, classifying them under the Largecap, Midcap, and Smallcap categories based on their average market capitalization between January and June. The list is put out twice a year. Between the period under review, benchmark stock indices have tanked more than 10%, signalling heightened volatility amid geopolitical crisis, rising inflation, and now interest rate hikes.

Stocks that may be upgraded

Analysts at ICICI Securities are still predicting industrials, real estate, financial services, banks, and auto segments to be upgraded from smallcap to midcap and from the midcap to largecap category. Among stocks that are predicted to enter the largecap categorisation are Adani Power, Cholamandalam Investment and Finance Company, Bank of Baroda, Hindustan Aeronautics, and Bandhan Bank. All the above-mentioned stocks have a ‘High’ probability of ending up upgraded, according to ICICI Securities.

Tata Teleservices (Maharashtra), KPR Mills, Tanla Platforms, Poonawala Fincorp, Phoenix Mills, SKF India, and Chambal Fertilisers are pegged to be upgraded from smallcap to midcap category. 

Quality and growth-oriented stocks to be downgraded

Stocks that could be downgraded from largecap to midcap category include HDFC AMC, Godrej Properties, SAIL, Zydus Lifesciences, Jubilant Foods, and PB Fintech (Policybazar). Others that may be entering the smallcap club from midcap are Sanofi India, Ajanta Pharma, Happiest Minds, UCO Bank, Aditya AMC, among others.

LIC, Adani Wilmar get direct largecap entry

ICICI Securities has joined analysts at Edelweiss Securities and IIFL to predict that newly listed LIC (Life Insurance Corporation of India) and Adani Wilmar will enter the largecap space soon. While LIC is the 7th largest firm by market capitalization, Adani Wilmar is the 70th. Top 100 companies by market capitalization enter the largecap category. Other new listed companies such as Delhivery, Vedant Fashions, and Motherson Wiring are expected to get midcap rating.

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