AMFI's methodology to classify small caps may face challenges
economictimes.indiatimes.comAMFI)'s small-cap stock classification formula is likely to face challenges in the upcoming semi-annual reclassification, especially given the significant uptick in stock prices and the listing of new companies.
The market capitalisation of stocks in the small-cap category, as per the existing formula, surpasses $3 billion (₹25,000 crore), deviating from the global average range of $300 million to $2 billion, said a report by ICICI Securities.
«As the economy expands along with more new listings in the large- and mid-cap space, the 251st ranked stock's market cap (upper threshold for small-caps) will continue to expand and may not conform to global standards,» said a note by ICICI Securities.
«Globally, small-caps are classified as stocks within the market cap range of $300 million to $2 billion irrespective of their market cap rank.»
The broking firm suggests that the current methodology of the rank-based approach may need to transition to a fixed interval method based on judgment at some point in time.
At present, certain stocks featured in AMFI's small-cap lists, such as Mazagon Dock, Suzlon Energy, Lloyds Metals, SJVN, and Kalyan Jewellers, among others, exhibit a market capitalisation ranging from ₹24,500 to ₹41,800 crore.
These stocks are expected to be reclassified into the mid-cap category. Simultaneously, current mid-cap entities like PFC, IRFC, Macro Tech, and Polycab, among others, are likely to be moved to the large-cap category, as per observations by ICICI Securities.
With a recent rally, PSUs, financials, industrials and consumer discretionary stocks are likely to show significant improvement in market-capitalisation size rankings, leading to upgrades within the market-cap size categorisation.
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