Whalesbook
Cautious Stance Amid Market Rebound
Flexi-cap fund managers are largely maintaining a conservative approach to mid and small-cap equities, even as these sectors showed strong gains in April. Average allocations to mid-cap stocks nudged up by 0.9% to 18.83% in April, from 17.93% in March, according to PrimeMF data. Small-cap exposure rose by 1.44% to 18.10% in the same period. This careful strategy contrasts with the market's performance, where the BSE mid-cap and small-cap indices surged 13.81% and 19.61% respectively, significantly outpacing the BSE Sensex and NSE Nifty which rose 6.9% and 7.5%.
Shifting Holdings Amidst Volatility
Within flexi-cap schemes, a trend of reducing large-cap exposure was evident, with 33 schemes cutting back while 11 increased their stakes. In the mid-cap space, 28 schemes raised their investments by an average of 2.01 percentage points, though 16 schemes reduced their positions. For small-caps, 34 schemes expanded their holdings by an average of 2.1%, while nine schemes decreased their exposure. These mixed adjustments suggest a selective strategy rather than a broad embrace of the mid and small-cap rally.
Inflation Fears and Recovery Questions
Alok Singh, CIO and Head of Investment at Bank of India Mutual Fund, cited persistent inflation, amplified by geopolitical events in West Asia, as a key reason for fund manager caution. He noted that smaller companies are often more susceptible to inflationary pressures. Singh also pointed to a slow recovery in many small-cap stocks after the market downturn in September 2024. He added that the apparent attractiveness of large-cap stocks might be misleading, potentially skewed by recent declines in the IT sector, and may not reflect a stronger underlying business picture.
Divergent Sector Selections
Despite general caution, some fund houses are selectively increasing their investments. Bank of India Mutual Fund, for example, has boosted its mid and small-cap stakes in its flexi-cap funds, focusing on sectors like auto, auto ancillaries, metals, pharmaceuticals, and power. Similarly, Sandeep Tandon, CIO at Quant Mutual Fund, reported a selective rise in mid and small-cap exposure, highlighting power, data centers, pharmaceuticals, renewables, and battery storage as key areas. These differing approaches show varied interpretations of market signals and sector opportunities amid economic uncertainty.