SEBI mutual fund stress test: Quant MF says smallcap fund to take 22 days for 50% liquidation

Quant Mutual Fund has announced that the time taken for 50 percent portfolio liquidation is six days for its Quant Mid Cap Fund and 22 days for the Quant Small Cap Fund. Further, the time taken for 25 percent portfolio liquidation is three days for the Quant Mid Cap Fund and 11 days for the Quant Small Cap Fund.

Acting on  The Securities and Exchange Board of India’s (SEBI) concerns about the froth building in mid-cap and small-cap segments, the Association of Mutual Funds in India (AMFI) had last month told mutual funds to conduct stress tests and publish the result on its own websites as well that of AMFI’s, once every 15 days starting March 15.

Quant Mutual Fund is among the first fund houses to publish the data.

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Fund houses were also supposed to publish granular details about their portfolio’s volatility and valuation details.

Small and mid-sized funds have seen high inflows, causing concern among authorities about how they would hold up in the event of a sharp market selloff.

Also read | Mid and smallcap indices turn negative for 2024: Four factors weighing on sentiment

Quant Small Cap Fund is among the 10 top schemes in the category with assets under management (AUM) of Rs 17,193 crore as of February end. Quant Mid Cap Fund had an AUM of Rs 5,422 crore.

According to the fund house, while there clearly are some pockets of high valuation and even frenzy in certain segments of our market, it does not perceive bigger risks in the mid-cap and small-cap spaces.

“As we have been emphasizing – without any ambiguity, Quant MF maintains its long-term constructive view on mid-cap and small-cap space and believes that its dynamic style of money management is best suited to navigate Indian equities,” the fund house said.

Quant Mutual Fund added, "Our Predictive Analytics tools clearly endorse that there are no classic signs of euphoria in Indian equities at this point of time. However, hype does get built in certain sectors or pockets and we mitigate these perceived risks by stock and sector rotation via quant’s 'Money Flow Analytics'."

Also read | Jefferies calls smallcap, midcap selloff as healthy correction, not a larger meltdown

According to the fund house, the trailing twelve months price to earnings (P/E) ratio for the benchmark Mid Cap 150 index is only marginally above its one-year and two-year ago levels, and even as the benchmark Small Cap 250 index is trading above its one-year ago level, it is trading close to its two-year ago levels.

Also read | Stress test: DSP Small Cap Fund needs 32 days to liquidate 50% of its portfolio

Granular data

The objective of the stress testing exercise of AMFI is to make the average mutual fund investor aware of the risks and impact of market volatility on the liquidity of one’s equity portfolio, based on which one can take appropriate decisions to rebalance and redirect one’s liquidity and savings, as one deems fit.

In terms of market capitalization and top-10 investors concentration, the stress test by Quant Mutual Fund revealed that holdings of large-cap, mid-cap, small-cap stocks and cash are 27.36 percent, 69.57 percent, 0 percent and 3.07 percent respectively, in the Quant Mid Cap Fund.

Holdings of large-cap, mid-cap, small-cap stocks and cash in the Quant Small Cap Fund are 28.36 percent, 0.24 percent, 65.87 percent and 5.53 percent, respectively.

Further, top-10 investors hold 2.99 percent in the Quant Mid Cap Fund and 2.10 percent in the Quant Small Cap Fund.

When it comes to volatility analysis, annualized standard deviation is 16.59 percent for the Quant Mid Cap Fund versus 14.67 percent for the benchmark and 19.73 percent for the Quant Small Cap Fund against the benchmark’s 17.57 percent.

In mutual funds, standard deviation tells investors how much the return from the mutual fund portfolio is straying from the expected return, based on the fund's historical performance.

Also read | Stress test: SBI MF can take up to 60 days to liquidate its small- and mid-cap portfolios

The Beta (net asset value-based) is 0.96 for the Quant Mid Cap Fund and 1.03 for the Quant Small Cap Fund.

Beta denotes the sensitivity of a mutual fund scheme towards market movements. A beta less than 1 denotes lower volatility and higher than 1 denotes more volatility compared to the benchmark index.