SEBI Categorisation Helps Mid/Small Cap Stocks

India’s capital markets regulator, the Securities and Exchange Board of India (SEBI) in consultation with the mutual fund industry revised fund categorisation into large-cap, midcap and smallcap stocks has turned the fortune for mid and small-cap stocks.

Nerolac, Adani Transmission, REC have emerged as a beneficiary from this move as they are included in the large-cap list; while YES Bank, Voda Idea are removed from this category.

Stocks that were moved to the midcap space included Adani Green, ICICI Sec & Cadila Health.

Stocks that were moved to the midcap space from smallcap are Adani Green, Akzo Nobel, CreditAccess Grameen, Dr. Lal Pathlabs, Future Lifestyle, ICICI Securities, Minda Industries, NIIT Technologies, Schaeffler India, Zydus Wellness, JK Cements, and PVR.

IRCTC and IIFL Wealth Management, which made a market debut during the second half of the year, were included in the midcap space.

SEBI in 2017 had defined large-cap, midcap and smallcap companies in order to ensure uniformity in respect to the investment universe for equity mutual fund schemes.

This was done to ensure that an investor is able to take a more holistic and informed decision while investing in a particular scheme.

The regulator had also stipulated that AMFI shall prepare the list of stocks in this regard, in accordance with the points specified under the circular.

According to the circular, the mutual fund regulator releases a list, on a half-yearly basis, which sends many midcaps into the large-cap category and vice-versa.

SEBI’s last categorisation exercise had led to large scale restructuring of mutual funds, especially in mid and smallcap funds, as MFs could not deviate from the classification as defined by NSE and BSE.

Earlier, there was no standard definition to classify companies as large, mid or smallcap.

As per the new rules, top 100 companies, in terms of market capitalisation, will be considered as large-caps (cut-off stood at 6M Avg M-cap of Rs 26,291 crore), the 101st to 250th companies will be considered as midcaps (cut-off stood at 6M Avg M-cap of RS 8,234 crore), and the 251st onwards will be considered small-caps.

Every reclassification has a cost to fund management for selling scrips and buying other scrips just to satisfy reclassification, all this at cost of fund expenses that shall hit NAV to be borne ultimately by investors.

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