Despite Sebi clarification, demand for small & midcaps will rise: Sunil Subramaniam

Even after Sebi clarification, some of the multicaps will remain in the new frame and hence the demand for small and midcap stocks will rise a bit.

We are comfortable with managing a true multicap because our strength and expertise is in the mid and small cap segments but we are seeking out key partners who helped distribute the fund and will decide after consultation, says MD & CEO, Sundaram Mutual Fund.

After Sebi'clarification on multicap fund rules, has the bazooka moment for mid and smallcaps fizzled out a bit?
We main excited. It is clear that you are not going to have that quantum of Rs 28,000 crore chasing small caps because a few of the larger multicap funds are going to re-categorise themselves or merge themselves into largecaps because the essential thought of those fund managers was to be largecap intensive and the customers who bought into it came with that intention. That being said, the entire industry is not going to do that.

So, definitely some of the multicaps will remain in the new frame and hence there demand for small and midcap stocks will rise a bit. That will mean a fund manager can go and choose quality without a mad mania putting up every penny stock and every stock on the net and making life difficult and expensive. I think this is actually good because not everyone of the 30 odd multicap funds are going to convert into largecap funds. We have recently launched a Rs 600- crore multicap fund. We are in the process of consulting with our partners, distributors and investors on the way forward, but given our expertise in small and midcap, adding good quality mid and small caps to the fund is not going to create a problem.

"There will be definitely increased interest in good quality small and midcaps to the extent that some funds continue to remain multicap. I remain excited because the value and quality of midcaps will get recognised by the market."

— Sunil Subramaniam

It is only the fact that the flexi cap manner in which a multicap was managed is history now. There is no more flexibility there. The second is investors who chose that category because it was large cap-oriented, will now look to either wait for that fund to say clearly that they are going to large caps and midcaps or they will like to switch to a large cap fund.

Either way, it is fine for the industry. There is no mad mania but there will be definitely increased interest in good quality small and midcaps to the extent that some funds continue to remain multicap. I remain excited because the value and quality of midcaps will get recognised by the market.

It seems Sebi is hinting that there could be some consideration and some dilution. Where do you think markets will move now?
Other day I had said that large caps will not see sharp correction and my point has been proved right. I do not think the largecaps will see a sharp correction because unlike Rs 41,000 crore that was expected to flow out of largecaps, that is going to be much smaller to the extent of fund house merges. It will be inter-scheme transfer within a fund and it does not need to come into the market. I stand by my view that largecaps will not necessarily see a very sharp correction. There will be some bit of flow there as adequate demand for large caps exist from both domestic fund houses as well as from FIIs.

My basic view from that day to today does not change except that Sebi has shown itself to be quite proactive and addressing over the weekend any market concerns on this mania and bringing out a press release which puts the things in perspective. I think Sebi has played a great role in calming the market.

What are you planning to do with the funds? Merge them or will you keep your multicap fund category independent and change the weightages?
In our case it was a recent launch about six months ago and it has garnered good traction. It is a Rs 600-crore fund. We are basically seeking out key partners who helped distribute the fund and speak to them about how they have positioned it. If they sold it as a true multi-cap, I see no need to change. However, if they sold it as a fund with predominantly largecap component -- we are at more than 75% in largecaps currently - -then we will look at our funds. We already have a large and midcap fund which is a four star value rated fund with excellent performance. We can look at a merger there. Also later this week, we are launching a blue-chip large cap fund, we can look there.

So options are many but we will go by them because these are very recent investors. I will consult with them and then make a decision. As a fund management team, we are comfortable with managing a true multicap because our strength and expertise is in the mid and small cap segments and we have very good stock picking ability. So there is no paucity of that and given the relatively smaller size, it should not be a problem to continue to manage it as a multicap provided fund if the bulk of our advisors say they are comfortable.