MC Inside Edge: MF churn stocks on the radar, institutional investors eyeing Craftsman Automation, Sebi's ad-hoc approach to rule making

Know all the major deals and all the inner goings-on from Dalal Street.

Churn is the name of the game

It is that time of the year when the markets begin to speculate on stocks that will be reclassified from the point of view of mutual fund investments. Twice a year, the Association of Mutual Funds in India, the industry body of mutual funds, releases the revised list of large-caps, mid-caps and small-caps based on the six-month average market capitalisation – this time the reclassification will be based on the January-June period. Investors and traders both keep an eye on this phenomenon as the reclassification is followed by a significant amount of fund flows since schemes typically realign their portfolios in line with the changes in the investible universe. Currently, names of stocks like Hero Motocorp, Samvardhana Motherson, Bosch, BHEL and JSW Energy among others are doing the rounds that would move from mid-cap to large-cap. Similarly, stocks like BSE, Cochin Shipyard, ITI, Godrej Industries, IRB Infrastructure, Mangalore Refinery and Motilal Oswal Financial Services are expected to move from small-cap to mid-cap. Then there are a few new entrants expected as well, including Go Digit Insurance, Jana Small Finance Bank, Medi Assist Healthcare, Kronox Lab Sciences and Nova Agritech among others. One can expect heightened activity in these stocks in the coming weeks.

On the institutional investor radar

There is suddenly a significant spike in interest in Craftsman Automation. The stock has gained nearly 21 percent in the last three months, outperforming the benchmark Sensex -- it has gained a little over six percent in the period -- by a wide margin. The manufacturer of auto components and equipment has witnessed a jump in terms of average traded quantity and the delivery volume – a jump of 500 times clearly indicating strong accumulation – as well with the counter closing above the Volume Weighted Average Price (VWAP) in nine out of the last 14 trading sessions. If market buzz is to be believed, then the Coimbatore-based listed company is on the radar of some institutional investors whose appetite for the stock is clearly on the rise.

Ad-hoc approach of SEBI

Capital markets regulator Securities and Exchange Board of India (SEBI) is keenly following the developments in the primary market and is leaving no stone unturned to make the segment more robust in terms of compliance and disclosure standards. But industry players are a confused lot as they feel that the watchdog is taking the “observations” and “email communication” route to convey its thought process rather than make concrete and statutory changes in the regulatory framework so as to remove all elements of doubts. They say that the recent requirements related to promoter classification or restricting the rights of pre-IPO investors namely PE/VC players or even enhanced disclosure standards for merchant bankers have all come by way of either an email communication by the regulator or through meetings or presentations. They feel that the regulator should amend the SEBI (Issue of Capital and Disclosure Requirements) Regulations to ensure uniformity.