With more than 70% of all stocks in the red since the start of 2018, most mid-cap and small-cap equity schemes have posted poor returns. For instance, between January and August, just seven of 21 mid-cap schemes had outperformed their category average while most small-cap schemes posted negative returns.
A study by FE shows close to three-fourths of all stocks with a market capitalisation of Rs 1,000 crore or more have lost value since January. The poor market sentiment has clearly affected flows into equity schemes with August reporting the smallest inflows in 18 months at Rs 5,923 crore.
Analysis from Value Research shows large-cap schemes did fairly well between January and August with the average return coming in at a good 9.4%. But of a universe of 32 large-cap equity schemes only four managed to outperform the average.
Mid-cap schemes turned in a return of a negative 3.48% which is not surprising since the Nifty MidCap Index has given up about 13.2% since the start of the year, and close 70% of its constituents have lost value. Small-caps as a category returned a negative10.03% with the Nifty Small Cap Index having shed 24.1% % since January and with 85% of its members having seen a fall in prices.
The Sensex gained 13.5% between January and August but was driven by a handful of stocks. The market breadth has been very poor; more than half the stocks with a market cap of over `1,000 crore plus have lost over 10% of their value since January 1. Of the 789 companies in this universe, 305 have lost more than 20% of their value, while about a third have lost more than 25%.
Average monthly inflows into equity schemes for the five months to August fell to `10,200 crore from `14,200 crore in the corresponding period of 2017-18.
As Nilesh Shah, MD, Kotak Mahindra AMC pointed out the rally is concentrated in seven or eight stocks that have pushed up the Sensex. “Most funds are underweight in these stocks,” says Shah who adds that quality is getting a disproportionately high premium today. “The defensive nature of these stocks and quality of governance has attracted investors to these companies despite very high valuations,” he explains. Shah expects the performance of equity schemes to bounce back soon.”
Not surprisingly, most of the MF schemes that have done well were invested in the banking, IT, NBFC and consumer sectors. For instance, Axis Bluechip Fund has invested around 35.5% of its corpus in banks and finance stocks with a big weightage for the HDFC twins, the August fact sheet suggests. Again, around 48.5% of the portfolio of Edelweiss Large Cap Fund is invested in banks, finance and software companies, with top holdings in heavyweights such as HDFC Bank and Reliance industries.
Total inflows into MFs in August were `1.74 lakh crore compared with outflows of `32,628 crore in July 2018. This marked the highest inflow since May 2011. Liquid or money market schemes registered net inflows of `1,71,108 crore against a net outflow of `31,141 crore in July 2018. Market participants say corporate prefer to invest at the shorter end of the curve in a rising rate scenario.
At 36,841.60, the benchmark Sensex trades at a price-earnings (PE) of 17.95 times to the estimated one-year forward earnings, a premium of 10.7% to the long-term average PE of 16.2 times. This compares with 8.9 times for Kospi and 14.1 times for Jakarta Composite. Brazilian Bovespa and the Shanghai Composite are trading at a PE of 10 and 10.3 times respectively, data from Bloomberg showed. Foreign portfolio investors (FPIs) have sold shares worth $1.2 billion between January and now. This compares with the domestic institutional investors (DIIs) buying a whopping $10.8 billion so far this year.