Recently I came across a news article which stated that Kotak AMC would re-open its KOtak Small Cap Fund for re-purchase or for subscription of units by investors.
Earlier In March 2024 it had limited taking fresh purchases in the fund. At that time the narrative was being built that small caps and mid caps have run substantially and large caps next would be outperforming small caps and midc caps.
As a matter of fact some of our clients made calls to us to gauge this concern and evaluate whether to jump out of the small /mid cap bandwagon or not.
So first let’s deep dive into past performance and valuation of Nifty SmallCap 100 in the last three months ( April to June 20204)-
On April 1 NIfty Small Cap 100 PE was 26.35 and on 28th June 2024 it was 29.28 slightly above 1 standard deviation.
15768 was the closing level for April 1 2024 and on 28th hJune it closed on 18317. Rise of more than 16% when NIfty rose nearly 6.8% in the same period.
So valuations have gone up and the index levels have also gone up then, It made me look closely into the reason why the Fund house is starting to re-open the scheme and thought of sharing it with you.
The Full article on this published by Economic times can be accessed through this link.
“Harish Bihani, Senior Fund Manager, Kotak Mutual Fund, says, there are themes, and stocks that will do well long term in India but there is no FOMO in those themes today”.
Our Takeaway- There are new themes emerging in the Indian investing landscape which represent niche pockets in markets which are yet to catch investor fancy. We have already seen what the defence sector has done for investors’ wealth in the past. On similar lines, aongstth themes which fund managers are trying to capture these days are – manufacturing, innovation, energy, business cycle, quant factor investing, business cycle,automotive and EV theme,Reality. These themes are being viewed as structural and trending.
“There were several key points that we had thought through before reopening this particular fund. First, we thought through the terms of the business cycle and post the events that have played out over the past couple of months, including the elections that are over. We are very clear that any changes done in the last 10 years we are moving in a certain direction and should continue to move in that direction so there is no change in the pace or the tempo of change that has happened over the past .
Second, the business cycle continues to be in an upcycle. There are opportunities across large-cap, mid-cap, and small-cap companies when we look at the business cycle. And when we talk about the business cycle, we look at many points. We look at profit to GDP. We look at the net debt to equity of companies which is at a 15-year low. We would look at the balance sheet of the banking system, which is phenomenal at this point. So, many factors went into this particular decision”.
Our Takeaway- Key trigger which has caused positivity in sentiment is passing off, of the major event- the general elections. MOre so, it was post this event in June that FIIs turned net buyers though marginally after 3 month of selling- such was the impact of this news event passing. Second important takeaway is that economically India continues to be in a sweet spot owing to Business upcycle and healthy banking balance sheets.
Conclusion– With Nifty Small Cap 100 valuations of around +1 SD at 29.28 as on June 28th and NIfty Small Cap 250 valuations stood at 30.70 more closer to +2SD. The result season would soon kick in and readjustment would have to be re evaluated. But one thing is for sure- we are far from being in euphoric zones at the moment . We would be watchful and alert going ahead.
Disclaimer- . MUTUAL FUND INVESTMENTS ARE SUBJECT TO MARKET RISKS, READ ALL SCHEME RELATED DOCUMENTS CAREFULLY BEFORE INVESTING.