Small, mid funds back on track

Mumbai: The ongoing ‘hope rally’ on the domestic bourses has breathed new life into small and mid cap schemes offered by mutual funds as they have now emerged as the best performing funds on an annual basis. The small and mid cap funds which remained under performers during the past couple of years now top the charts in terms of annual performance. According to the data available with Value Research, a mutual fund tracking firm, mid and small cap schemes have rewarded investors with an average annual return of 47.90 per cent. This is when compared to 40.75 per cent and 40.60 per cent returns generated respectively by technology and infrastructure focused funds.

“We have seen a steep rally in small and mid cap stocks in recent weeks partly because of their attractive valuations and partly because of the improved risk appetite among investors,” pointed out David Pezarkar, chief investment officer (CIO), equity, Bank of India (BOI) AXA Investment Managers. With the prospects of a revival in economic growth looking bright under the new government, fund managers said that the small and mid cap funds would continue to remain out-performers for at least another 3-4 years. Already close to 750 stocks listed on the BSE are trading at their 52- week high as the markets believe that a revival in economic growth would help these companies to improve their top line and bottom line growth.

“A revival in economic growth means, better top line and bottom line growth for these companies. There will be minor corrections in the prices of these stocks. But they are expected to perform exceedingly well for another 2-3 years. Sectors like oil&gas, infrastructure, constructions, engineering and consumer discretionary would benefit the most from any revival in economic growth,” Mr Pezarkar added. According to Kishor Ostwal, chairman and managing director of CNI Research, there is enough steam left in small and mid cap stocks for further upside. “Their valuations are still looking attractive. Most of them are still trading at a huge discount from their all time high. They have only partially recovered their lost ground and therefore the small and mid cap stocks could see further appreciation going forward,” said Mr Ostwal.