Midcap, smallcap focused equity MFs shine

MUMBAI, Jan 18 (TNN): With mid-cap stocks surging on the bourses, equity mutual funds (MFs) that invest in them have gained at a rapid pace. Equity MFs that have exposure to mid and small-cap stocks have increased by about 13.5 per cent on an average in the past six months.

They lagged only funds that invest in technology and pharmaceuticals stocks during the period. The BSE small-cap and mid-cap indices are among the best performers in recent months.

While the BSE small-cap index soared 14.5 per cent in the last three months, the mid-cap index jumped 11.2 per cent for the period. This enabled small and mid-cap equity funds to gain 12.1 per cent in three months, the best performance among widely traded asset classes.

Though the markets gained in the last one year, the performance was largely driven by large-cap stocks. While the benchmark Sensex advanced about 5.7 per cent, stocks in the small and mid-cap space were among the worst performers in the past year.

"Mid-cap stocks became very attractive as valuations came down," said Sankaran Naren, chief investment officer, equities, ICICI Prudential MF. "Mid and small-cap stocks were beaten down badly during July-September.

They have picked up strongly as prices became cheap," a senior official with a leading fund house said. Cyclical sectors including capital goods and interest-rate sensitive segments have started doing well on the hopes of a recovery in the economy, officials said. "There has been a return of risk appetite among investors," a senior official said.

The performance of mid-cap stocks and funds would now depend on interest rates, officials said. "Good mid-caps would do well if interest rates come down," Naren said. "If the interest rate environment changes it would help mid-caps," officials said.