Stress tests show mutual funds may sell holdings: Geojit’s Gaurang Shah

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During an interaction with India’s first personalised multilingual personal finance Super App, Money9, on recent SEBI directives on stress test of mid and small cap funds, Gaurang Shah, Sr. VP, Geojit Financial Services said that mutual funds investing in such stocks may have to sell their holdings because of stress test results that have come up. After the SEBI directives, various mutual funds published stress test results. Most of the tests showed retail investors will have to wait for longer time to redeem units in case of panic selling.

On increasing retail interest in stocks of lower market caps and on recent correction in stocks of such categories, Shah said “When small and micro cap stocks fall, retail investors can’t find a way out to sell their holdings. If somebody has taken this decision to invest in such stocks, then, that person must have that much risk appetite to absorb shocks in the market.”

Albeit, Shah also added “All mid and small caps are not fundamentally weak companies. Large caps have risks. But, small and mid caps come with even higher risk.” He advised retail investors to invest in small caps only when they have that much risk appetite.

According to Shah, investors these days want to become “lakhpati” or “crorepati” in short duration of just three months. But he said, this is not how market works.

He advised retail investors to buy quality not quantity. He said “When stocks multiply in no time, it brings creates conditions in the market that stocks do fall sharply.” He reminded investors “This is share bazaar not chor bazaar.”

According to Shah, if a retail investor does not have capacity to absorb market shocks, then, he should stay away from stock market, he should rather invest in FDs, government bonds, gold bonds, etc.

If it was true that whatever retail investor would buy that scrip would amplify manifold then anybody would have opened demat account and become rich. There would have been no poverty in India.

In last few years, retail investors have invested thick and fast in small and mid cap funds. Nifty Small Cap 250 Index is up 55 per cent in last one year, while, Nifty Mid cap 150 is up 51 per cent.

On raising concerns that small investors have put hard earned money in relatively riskier small and mid cap stocks, market watchdog, Sebi, had made it mandatory for funds investing larger chunk of capital in such stocks to disclose stress test results for investor enlightenment.

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