Smallcap rally forces Aequitas to suspend new inflows into PMS

Aequitas said that despite the challenges, the valuation and growth prospects for their portfolio companies look reasonable, and they will continue to hold them

Aequitas Investments has suspended new inflows into its domestic Portfolio Management Service (PMS) and Alternative Investment Funds (AIF), as the recent rally in smallcap stocks has left little room for the firm to find reasonably valued investments, managing director and chief investment officer Siddhartha Bhaiya has said.

"The current frenetic and euphoric rally in the small and midcap index over the last six months has reduced the number of stocks that fit within our valuation framework," Bhaiya said in a LinkedIn post.

The decision was taken to maintain minimum margin of safety requirements before investing in stocks, he said, adding the firm remained bullish on the long-term prospects of its portfolio holdings.

Aequitas invests in smallcap companies and manages Rs 4,500 crore. Its PMS fund, India Opportunities Product, which invests in smallcap companies, gave returns of 88 percent in the past one year.

Aequitas' multibagger stocks include Avanti Feeds, Finolex Cables, HEG and Nilkamal.

The year 2023 has seen a smallcap and midcap rally with a lot of stocks turning multibaggers. The Nifty midcap index has gained 44.13 percent since January 1, while the smallcap index is up 55.51 percent. PMS funds focused on smallcaps and midcaps have seen returns of as much as 88 percent during the period.

The benchmark Nifty 50 has gained 17 percent during the period.

Also read Saurabh Mukherjea’s Little Champs turns worst performer in the PMS pack over the past year

Majority of mutual fund inflows this year were seen in small and midcap categories. In November, the smallcap category received highest inflows of Rs 3,699 crore followed by midcap’s at Rs 2,655 crore.

Bhaiya said a bubble was building in the initial public offerings (IPO) and small-medium enterprises (SMEs) markets. The spate of qualified institutional placement and secondary offerings was also sucking out liquidity from the system.

Aequitas terms IPOs, QIPs, secondary equity sales and expensive valuations as red flags and stays away from them during stock selection.

Aequitas' offshore fund, however, will continue to accept funds.

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