Domestic institutional investors (DIIs) have substantially raised their stake in mid-cap companies in the last two-three quarters owing to a huge quantum of inflows received by the Indian MF industry.
As per Capitaline data, DIIs, excluding banks, raised their stake in 50 mid-cap companies during the quarter. That represents close to 65% of the 77 companies in the BSE Mid-cap universe. With banks included, 47 companies reported an increase in DII shareholding.
State-owned Canara Bank reported the highest increase in DII shareholding. Domestic funds raised their stake by 7.48 percentage points (ppt) during the June quarter to 20.03%, data showed.
Others that reported a substantial increase in DII shareholding include Tata Communications (5.6 ppt), Zee Entertainment (1.55 ppt), Union Bank of India (1.19 ppt) and Mahindra Finance (1.18 ppt).
Experts attributed the return of retail investors and the subsequent performance of mid-cap stocks as the prime reason for the increase in DII shareholding. Investors flocked to equity mutual funds anticipating economic reforms by the Narendra Modi-led BJP-NDA government.
Retail investment in the equity market through the MF route is one of the most important reasons behind the rally of mid-cap stocks, analysts said, adding that the same set of mid-cap companies would be hit hard in case of a financial crisis. As per Amfi data, equity mutual funds, excluding ELSS, witnessed inflows of Rs 56,194 crore since the beginning of CY15. “Majority of mid-cap stocks were reasonably priced and, hence, offered attractive returns.
Domestic institutions will continue to invest in mid-cap stocks as long as valuations remain attractive,” Dinesh Khara, MD, SBI MF.
The gauge of mid-cap companies surged to new highs last week, and the BSE Mid-cap index yielded nearly 9% in the last three months. In contrast, the Sensex has risen 2.8% during the same period. A section of the industry said that there is nothing surprising about the trend. “The market capital of mid-cap firms is small compared to large-cap companies. Hence, even a small purchase translates into significant increase, percentage wise. Further, with upbeat inflows, AMCs have been investing actively in all category of companies, not just mid-cap,” said Milind Barve, MD, HDFC AMC.