Last week SEBI has come out with the uniform definitions for fund categories. We talked to a few fund managers to understand if they will make changes to their portfolios to fit into the SEBI’s definition of large cap, mid cap and small cap.
Most fund managers say that their portfolios are in line with SEBI’s definition of large cap, mid cap and small cap stocks.
Pankaj Tibrewal, Fund Manager (Equity), Kotak Mahindra Mutual Fund says that their criteria of selecting a stock as a large cap, mid cap or small cap stock is in line with SEBI’s definition. “We do not expect our funds to undergo changes as our stock selection is as per SEBI’s definition. However, offer documents will undergo a change to fit into the regulatory norms,” says Pankaj.
Gopal Agrawal, CIO, Tata Mutual Fund also says, “We take the first 100 companies in terms of market capitalisation as large cap stocks. Also, our large cap fund has more than 80% allocation to large cap stocks and hence is very much aligned with the SEBI definition. Overall, only a few minute changes need to be done in our portfolio,” says Gopal.
However, a few fund managers say that they will have to change their definitions to fit into SEBI’s definition. “We consider top 100-200 stocks as per market capitalisation as mid cap stocks and next 200-300 stocks as small cap stocks and the rest as micro-cap stocks. In this respect, we have to change our definition as the 101-250 stocks will be defined as mid cap stocks and the rest as small cap stocks as per SEBI circular. There will be marginal changes to our portfolios,” says Atul Bhole, Equity Fund Manager of DSP BlackRock Mutual Fund.
Experts say that the move will lead to significant changes in the equity portfolios of large fund houses. Vidya Bala, Head of Mutual Fund Research at Fundsindia.com says that while smaller fund houses have clear and unique strategies for their funds, large fund houses may see consolidation of their schemes and will have to incorporate some changes to their portfolios.
On the other hand, rating agency CRISIL says that there could be some additions of categories and change in category definitions. The extent of change would however depend on the categorization changes implemented by the industry, says CRISIL.
So far, CRISIL defines schemes that have at least 75% exposure to CRISIL-defined large cap stocks (top 100 stocks based on daily average market capitalization on the National Stock Exchange) as large cap funds while the schemes that have less than 45% exposure to CRISIL-defined large cap stocks as mid and small cap funds.
