The changes in investment rules for multi-cap funds ordered by the Securities and Exchange Board of India (SEBI) could see about 16 stocks from diverse sectors being upgraded, a note from the brokerage firm ICICI Securities has said.
By January 5, 2021, the Association of Mutual Funds of India (AMFI) is expected to release a fresh list for categorisation of stocks into largecaps, midcaps and smallcaps based on average market cap for the second half of the calendar year 2020, it said.
The brokerage firm expects four-five switches between largecaps and midcaps, and 11-12 switches between mid and small-caps.
YES Bank, Adani Enterprises, PI Industries, Hind Aeronautics and Jubilant FoodWorks are the stocks that have a high probability of being included in the largecap category from the midcap category.
On the other hand, United Breweries, Concor, General Insurance and Bank of Baroda can be shifted to the midcap from the large-cap category.
Laurus Labs, Alok Industries and Dixon Technologies are among the stocks that may move to the midcap category from the smallcap grouping.
"Lower end of the size limit for largecaps and midcaps have increased to Rs 27,600 crore and Rs 8,200 crore, respectively, from Rs 26,700 crore and Rs 7,000 crore, based on the market data for H2CY20 available so far," ICICI Securities said.
As per the SEBI circular dated October 6, 2017, mutual funds have one month to align their portfolios as per the fresh list.
"Multicap schemes that choose to remain multicap schemes will have up to the same time for rebalancing their schemes as per the fresh guidelines," said the brokerage firm.
The market regulator on September 11 tweaked its October 2017 circular, mandating multi-cap funds to invest at least 25 percent each in smallcaps, midcaps and largecap stocks, leaving the remaining 25 percent to their discretion.
These funds are now required to invest a minimum of 75 percent of their assets in equity and equity-related instruments from 65 percent earlier.
On September 13, the regulator issued a clarification, reemphasising that mutual funds should be true to label and stick to appropriate benchmarking, indicating its seriousness to implement the circular strictly.
The SEBI said it was conscious of market stability and that is why it had given the industry time till January 31, 2021, to meet the new minimum limit norms pertaining to multi-cap funds.
All mutual funds are required to comply with the latest provisions by the first week of February 2021.
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