Is momentum money chasing smallcaps, putting investors at risk?
mutual funds having exposure to this segment, as the moolah chasing it is momentum money that could put investors to greater risks when markets correct, experts tell ETMarkets, while warning against getting enticed into investing more, in case small caps rally up further from here.
Mutual funds having exposure purely to small cap stocks have seen inflows of Rs 19,784 crore in six months ended July which is nearly double from the inflows seen in midcap funds at Rs 10,304 crore. In contrast, largecap funds have been at the receiving end of investors’ ire with outflows of Rs 3,974.10 crore.
The traction towards small cap stocks has been riding on high returns they have yielded, this year.
In the last six months, Nifty smallcap stocks have given over 28% income on investments which is ahead of the returns given by Nifty MidCap 100 stocks (27.80%) and Nifty 100 (10.31%).
Sandeep Bagla Chief Executive Officer at Trust Mutual Fund said that the money chasing small cap stocks was not smart money but the momentum money which puts investors at considerable risks. He said that the Indian equities were currently trading in an overvalued zone, leave aside the small cap stocks which have seen a near 30% uptick.
While the rally in small cap stocks may go further up from here, he strongly recommended reducing exposure in them.
The view was endorsed by two other experts Adhil Shetty, CEO of Bankbazaar.com and Alekh Yadav, Head of Investment Products at Sanctum Wealth.
Investors must not make the mistake of rushing into the small cap category, believing past returns guarantee future returns, Shetty said, emphasising that they often do not.
“We have seen one-year returns of 30-40% in the mid and small cap categories of funds. These are
