Stress test shows Tata Small Cap Fund may take 35 days to sell half the portfolio

Tata Small Cap Fund has no investments in largecaps and barely 2 percent in midcap stocks.

Tata Mutual Fund's Small Cap Fund (TSF), despite its relatively smaller corpus of Rs 6,289 crore, has reported stress test numbers which imply it will take 18 days for the fund to sell 25 percent of its portfolio, and 35 days to sell 50 percent of it.

The Tata Small Cap Fund reported the poorest number among the 10 fund houses that have shared their stress test results by the morning of March 15.

It should be noted that this is simply a stress test number as required to be disclosed by the capital market regulator Securities and Exchange Board of India (SEBI) in the wake of the 'froth' it believes has built up in the small and midcap segments.

Nippon India Small Cap Fund, India’s biggest smallcap fund, has reported 27 days as the period it would require to liquidate 50 percent of its portfolio.

A slightly deeper look into Tata Small Cap Fund's (TSF) portfolio reveals more about its liquidity picture. The scheme has a hugely disproportionate 93.77 percent of its corpus invested in smallcap stocks, no investments in largecaps, and very little — barely 2 percent — in shares of midcap companies.

The good news for TSF is that its portfolio doesn’t appear to be as overvalued as the benchmark index. The price-to-earnings (P/E) ratio of TSF is 21.68 times as opposed to benchmark index’s P/E of 28.85 times.

Tata Mid Cap Opportunities has reported far better numbers. This is a tiny fund, compared to many of its peers, with a corpus of Rs 3,293 crore.

As per its calculations, it will take just three days to liquidate 50 percent of its portfolio. The portfolio though appears to be almost at par with that of its benchmark index.

ICICI Prudential Small Cap Fund, with a corpus of Rs 7,415 crore has reported good numbers. It would take 10 days for it to liquidate 50 percent of its portfolio and five days to liquidate 25 percent of its portfolio.

The numbers reported  by UTI Mid Cap (UMF) appear equally impressive. With a corpus of Rs 10,046.23 crore, it would take UMF about four days to liquidate 50 percent of the portfolio and 2 days to liquidate 25 percent of the portfolio. The numbers are similar to Sundaram Mid Cap Fund which too is of a similar size.