How India's top 10 mid-cap mutual funds fare on liquidity stress test

livemint.com:

MUMBAI : India's top small-cap fund managers will take anywhere between a day and 17 days to liquidate a quarter of their portfolios during market upheavals, as revealed by stress tests conducted by various fund houses. Asset managers would likely require a minimum of three days and a maximum of 34 days to exit half of their mid-cap stocks. Market regulator Securities and Exchange Board of India (Sebi) initiated these stress tests following concerns about potential market bubbles, primarily fuelled by the overenthusiasm of retail investors.

Sebi had voiced apprehensions regarding the lofty valuations of small-cap and mid-cap stocks, advising money managers to cap inflows into these schemes. The Nifty Midcap 100 Index has gained 55% in one-year period, far in excess of Nifty 50’s 29% gain during the same period. Sebi chairperson Madhabi Puri Buch had said that by March 15, the regulator would introduce a stress testing disclosure format for small- and mid-cap funds.

This move aims to provide investors with clarity on the potential liquidation timeline of these funds under adverse market conditions. HDFC Mid-Cap Fund, the largest with assets under management (AUM) worth more than ₹60,000 crore, would need 23 days to exit 50% of its portfolio and 12 days to liquidate 25%. The top 10 investors hold 1.41% of scheme's AUM.

Kotak Emerging Equity Fund, with the second-highest AUM at ₹39,738 crore, would take 34 days to offload 50% of its stocks and 17 days for 25% of the portfolio. The top 10 investors hold 4.9% of the fund’s AUM. Nippon India Growth Fund, with an AUM of ₹24,480.78 crore, would take seven days to liquidate 50% of its portfolio and 4 days to sell 25%.