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The ongoing bull run in the market has seen many Indians entering the equity stock markets. The number of registered investors has gone up to 7,22,28,575 as of July 2, 2021, this number is more than the population of Thailand, the United Kingdom, France, or Singapore. That apart the bull run also changed the valuations of many companies and are quoting at their lifetime highs. This has led to some mid-cap companies becoming large-cap companies and some small-cap companies becoming mid-cap companies.
Citing this Association of Mutual Fund in India (Amfi) pushed the cutoff for largecap and midcap categories significantly higher. The industry body in its biannual reclassification report said the cutoff market cap to become a large-cap company stood at Rs 37,746.26 crore compared to Rs 28,900.31 crore as of January.
Large-cap category
Large-cap equity funds invest a considerable part of their portfolio in companies grouped under large market capitalisation. Companies that are rated from 1 to 100 depending on their market capitalisation are classified as large-cap companies, according to the rules.
NMDC, Apollo Hospitals, Cholamandalam Investment and Finance, SAIL, Bank of Baroda, Honeywell Automation and Adani Total Gas entered the large-cap territory. Replacing PI Industries, HPCL, Indraprastha Gas, Petronet LNG, Hindustan Aeronautics and Abbott India.
Mid-cap category
Mid-cap funds are equity mutual funds that invest in the stock of mid-sized businesses. Companies that are rated from 101 to 250 depending on their market capitalisation are classified as mid-cap companies, according to the rules. Midcap stocks now have an average market capitalisation of Rs 11,819 crore, up from Rs 8,389 crore during the December-January reclassification.
Indian Railway Finance, Macrotech Developers, Sona BLW Precision Forgings and Indigo Paints are the new entries of the mid-cap segment. Tata Elxsi, APL Apollo Tubes, Kajaria Ceramics, Bank of Maharashtra, and Apollo Tyres are among the firms that have been reclassified from small-cap to mid-cap.
Small-cap category
Small-cap funds are equity funds that invest at least 65 per cent of their assets in small size businesses’ stock and stock-related investments. According to SEBI regulations, small-cap businesses are those with a market value of fewer than 250 companies market cap.
Stocks like Metropolis Healthcare, ITI, Prestige Estates, Mahanagar Gas, P&G Health, Credit Access, Motilal Oswal, Granules India, Bombay Burmah, Astrazeneca, Godrej Agrovet, IIFL Wealth, SJVN and Central Bank moved from mid-cap to small-cap.
Sebi guidelines
As per the circular released by SEBI in October 2017, the domestic mutual fund schemes have to be strictly categorised into baskets with a well-defined classification of large-cap, mid-cap and small-lcap stocks. It had also said that AMFI will biannually prepare and review the list of stocks according to the criteria specified under the circular.
AMFI will release the list of stocks that will be reclassified in July & December while the fresh list will be effective from August 2021 to January 2022.