Retail investors take MF route to join mid-cap rally

[B. Karthick]

Having burnt their fingers in small- and mid-cap shares last year,
retail investors have taken a more cautious approach this time: they
are playing the mid-cap rally through the mutual fund (MF) route.
Market watchers say this could further fuel the rally in second-line
stocks, as fund managers will have to deploy the money collected
through these schemes, even if it means having to chase prices.

As per May figures, renewed inflows and appreciation in portfolio
value have boosted the asset base of mid- and small-cap schemes by
18-30%.

"The idea is to invest in these schemes with a very short-term view —
say 3-5 weeks. When the investor touches a preset target (about
20-25%), he’ll redeem his investments," said Emkay Global Financial
Services wealth management head, Akhilesh Singh.

"Even if the investor pays a 2% exit load for prematurely redeeming
his fund investments, he's still making good money. Moreover, the
investor is free from traps such as illiquid counters or rigged
stocks," Mr Singh added.

Several stock brokers hold the view that even if there is a broader
market correction, mid-cap stocks will have more 'price upside' (than
their large cap peers) when the market turns around. The BSE Midcap
index and BSE SmallCap index have risen 51% and 62%, respectively,
over the past one month compared with a 30% rise in the Sensex.

"Expectations that second line stocks could rally further is drawing
investors into lower group funds," said Sundaram BNP Paribas Mutual,
head-equities, Satish Ramanathan.

"If one considers the impact cost involved in buying midcap stocks, it
is much cheaper to have an exposure to a lower group through mutual
funds. Lower group stocks have run up quite a bit; we’re expecting the
prices to correct in that segment," Mr Ramanathan added.

According to sources, quite a bit of institutional money is flowing
into midcap/smallcap funds with a large corpus.

B.Karthick
Research Analyst.