The stress level in small-cap funds eased as the inflows tapered off on the back of growing uncertainty.
The market leader Nippon India Small-Cap fund reported as of last month that it will take 30 days to sell 50 per cent of its portfolio against 36 days logged in January, while it will take 15 days to offload 25 per cent against 18 days in January, according to the Association of Mutual Funds in India data.
The small-cap asset of Nippon India MF was up two per cent at ₹58,007 crore (₹57,006 crore).
SEBI mandated stress tests for small-cap mutual funds to assess their liquidity under stress scenarios. These tests require mutual fund houses to disclose the time it would take to liquidate 25 per cent and 50 per cent of the portfolio, during adverse market conditions. It reveals fund managers’ ability to handle redemptions and potential liquidity issues in a crisis.
HDFC Small-Cap asset fell to ₹30,871 crore (₹31,234 crore) last month while stress level was also down at 47 days (60 days) and 23 days (30 days).
Among the top funds, quant small-cap fund was the only fund house to report an increase in dilution of 50 per cent and 25 per cent to 70 days (51 days) and 35 days (25 days).
The inflows into overall small-cap funds were down 30 per cent last month at ₹4,000 crore against ₹5,721 crore in January.
Vivek Sharma, Investments Head & VP at Estee Advisors said there was massive selling in small-cap stocks in January and February, with 49 out of 250 small-cap stocks being down by at least 50 per cent from their one-year high.
Smallcap has more number of companies across diverse sectors compared to large and mid-cap have only 100 and 150 companies to invest, he added.
Small-cap valuations are still high when compared to historical levels and earnings outlook for the next quarter remain uncertain, he said.
Kush Gupta, Director at SKG Investment & Advisory, said the 5-year return of the Nifty Small-cap 250 index is about 33 per cent CAGR, which is unheard of in any sector.
Upgrade in the small-cap space is a little uncertain for the next two quarters; Nifty Small-cap Index has seen consensus cut FY26 EPS by over 20 per cent. Post the cuts, FY24-FY27 EPS CAGR for Nifty Small-cap Index is only 4 per cent compared to 11 per cent for Nifty 50, said Gupta.
Published on May 17, 2025
