SEBI has come out with circular(SEBI/HO/IMD/DF3/CIR/P/2020/172) which mandates Multi Cap funds to put minimum of 25% funds in each Large, Mid & Small Cap. With size of ~1.5 Lakh Cr, that will result in 37K Cr of inflow to small and mid caps by January 2021. Small caps and Mid caps are ready to run crazy.
How does SEBI defines Large Cap, Mid Cap & Small Cap you may wonder.
List the all companies by Market Cap in descending order and take Top 100 companies they are large cap and next 150 (from 101-250) are mid caps and rest are small cap.
As per the June 30, 2020 AMFI Classification based on SEBI circular market cap of all Mid cap listed in India is 21.07 Lakh Cr and of Small cap is 14.09 Lakh Cr.
Remember funds won’t be interested in most of the small and mid caps. Select mid and small cap they will buy.
A massive buying spree is coming in next 5 months. If you are holding some good quality small cap and mid caps hold onto it much better days are coming your way. Please avoid buying into any and all kinds of small caps and mid caps because of such legal mandates.
This move by securities market regulator SEBI will also result in much wider buoyancy in stock market and that will result into high animal spirits. This will also result in easy and cheap funding for smaller companies which for last 3 years have been beaten down and are trading at ultra cheap valuations. This is win – win for all. Regulator having right mindset, focusing on growth of wider markets augurs well for all.
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