Small Cap funds face outflows in March after Sebi’s warning!

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Capital market regulator, SEBI’s concern on stretched valuations of small-cap stocks seems to have dominated retail investors’ investing strategy,  as, after a long time, small-cap mutual funds in the country faced ouflow of funds in the month of March 2024.

According to the Association of Mutual Funds of India (Amfi), small-cap funds faced outflow of  Rs 94 crore in the month under consideration. Small-cap funds have in the past seen record inflows from retail investors, but, after the market watchdog had expressed concern on rising valuation of small cap stocks, funds faced outflows. Small investors seem to have taken Sebi’s concern so seriously that in the month under consideration, no other equity fund category saw funds outflow barring the concerned category  here.

Pankaj Shrestha, Head of Investment Services, Prabhudas Lilladher Pvt Ltd, said, “Amidst SEBI’s concerns over market froth in Mid & Small Cap segments and halts in lumpsum investments by many fund houses, we anticipate a resurgence in flows towards largecap funds.”

In March 2024, large cap funds saw inflows of Rs 2,127 crore

BSE Small Cap 250 Index too fell by 4.6 per cent in March 2024. While, Sensex rose by 1.4 per cent.

Albeit, small-cap funds saw outflow in previous fiscal year only in one month. Rest in each month, funds have seen massive inflows. As a result, AUM of small-cap funds swelled 83 per cent year-on-year (YoY) to  Rs 2.43 lakh crore in March 2024 from Rs 1.33 lakh crore in year-ago month.

Inflows into equity mutual funds have been positive in every month continuously from March 2021. In the period ranging from March 2023 to the financial year 2023-24’s concluding month, equity funds AUM has swollen 54 per cent YoY to Rs 23.48 lakh crore from Rs 15.17 lakh crore. In March 2024, equity funds saw Rs 22,633 crore worth of inflows.

Thematic funds have also been retail investors’ favorite in the last one year or so. In March 2024, thematic funds garnered the highest inflows compared to all other categories of equity funds.

The inflows in thematic funds have doubled to Rs 7,917 crore in March 2024 from Rs 3,928 crore last year in the same period. The AUM has reached Rs 2.97 lakh crore registering a jump of 72 per cent YoY from Rs 1.72 lakh crore in March 2023.