MF Stress Test LIVE Updates: Quantum, Bandhan, HDFC, Franklin, Mirae Asset announce results

The stress test result showed that it would take 33 days for 50 percent portfolio liquidation in the Kotak Small Cap Fund, and 34 days in the Kotak Emerging Equity Fund. For the 25 percent liquidation, the fund would take 17 days each in its small-cap and mid-cap funds. Kotak Small Cap Fund has assets under management (AUM) of Rs 14,196 crore and Kotak Mid Cap Fund has an AUM of Rs 39,738 crore.

The stress test result showed that it would take 3 days for 50 percent portfolio liquidation in the Motilal Oswal Small Cap Fund, and 10 days in the Motilal Oswal Midcap Fund. For the 25 percent liquidation, the fund would take 2 days and 5 days in its small-cap and mid-cap funds, respectively. Motilal Oswal Small Cap Fund has assets under management (AUM) of Rs 1,491.52 crore and Motilal Oswal Mid Cap Fund has an AUM of Rs 8,490.76 crore.

The stress test result showed that it would take 35 days for 50 percent portfolio liquidation in the Tata Small Cap Fund, and 3 days in the Tata Mid Cap Growth Fund. For the 25 percent liquidation, the fund would take 18 days and 2 days in its small-cap and mid-cap funds, respectively. Tata Small Cap Fund has assets under management (AUM) of Rs 6,289 crore and Tata Mid Cap Fund has an AUM of Rs 3,293 crore.

SBI Small Cap Fund (SSCF) has broken records so far as far the stress tests are concerned. At Rs 25,533.78 crore, the scheme has reported that it would take up to 60 days to liquidate 50 percent of its portfolio. This is the highest number of days that any scheme has reported so far. In fact, it will take 30 days to liquidate 25 percent of its portfolio, also the highest number reported so far in the 25-day liquidity segment.

The move by SEBI is aimed at protecting the interest of investors who are invested in Mid-Cap and Small-Cap Mutual funds. These stress tests along with the commentaries from the fund houses should calm down the panic in the small and mid-cap indices. The worry of stretched valuations may be true in some pockets but not in the entire mid and small-cap space. However, the requirement of publishing the stress tests at regular intervals should start a good practice.

"The regulator is not asking to shutdown smallcaps and midcaps. They are asking investors to clear about their risk appetite as smallcaps and midcaps have rallied heavily," Tandon told Moneycontrol.

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Market always wants a reason to correct and it so happened that the stress test compulsion from SEBI is coinciding with the market fall. Don't do too much analysis as it will become paralysis, A. Balasubramanian, Managing Director and CEO at Aditya Birla Sun Life Mutual Fund told CNBC TV-18. "I do not expect any major redemptions to come in. Investors who have over allocated to small caps and mid caps, will probably now stop chasing returns and instead look at their allocations in their portfolio," he added.

"Market should not misinterpret what the regulator is asking. This is a theoretical exercise and a good form of transparency. Most MF's have risk officers looking at these numbers," Sandeep Tandon, founder and CIO, Quant Mutual Fund told Moneycontrol.

Today's stress test disclosure is a part of SEBIs measures to control excessive froth in the small and mid cap space. A couple of weeks ago, SEBI’s directive to mutual fund body AMFI to moderate inflows into small and midcap schemes made headlines.

This is just another in a series of steps SEBI has taken to safeguard the interests of all stakeholders.

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According to Morningstar's Kaustubh Belapurkar, these numbers shouldn't be looked at in isolation. But also investors do not need to dig too deep unless they see extreme outliers. "We also need to think about the spread of the investors. We have well spread out retail investor money in these portfolios," he told CNBC-TV18.

Smaller sized schemes, like Aditya Birla Sunlife and Sundaram Mutual Funds have reported better liquidity. At Rs 5,382.09 crore, Aditya Birla Sun Life Small Cap Fund has reported that it would take 10 days to liquidate 50 percent of its portfolio. Sundaram Small-Cap Fund, with a corpus size of Rs 3,056 crore would take half as many days to liquidate 50 percent of its portfolio.

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There is nothing that investors did not already know except the number of days. Just revealing the number of days of every fund is not enough,
Swarup Mohanty, Associate Director and National Head - Institutional Sales, Mirae Asset Mutual Fund (India) told CNBC TV18. "We have to bring in the skill of the backend of the fund management, skills of the dealers, skill of the entire fund management unit in managing liquidity which will differ from fund house to fund house," he added.

"These disclosures will tell investors that they have to look at portfolio quality and liquidity," said Radhika Gupta, MD & CEO, Edelweiss Mutual Fund to CNBC-TV18 talking about the stress test results being announced by AMCs. Broadly, she added, that the data looks good.

The results of a stress test should not form a basis for investors to buy or sell a fund. The liquidity Stress test is in fact a way of Sebi telling mutual funds that they can not shut redemption window if market conditions turn adverse. Investors need to remember that equities by their very nature are long-term products, because prices tend to be volatile.

Thus, if you invested in small-cap funds opportunistically in recent times, to cash in on this segment based on their stupendous returns near-term returns, it may be a good idea to pull back because this segment might take a breather for a while. Ironically, that may not be because any large-scale selling by mutual funds but because in stock markets, what is unsustainable finds a way to not sustain itself.

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Nippon India's Sailesh Raj Bhan recently told Moneycontrol, " We always keep some buffer, in large and midcaps, and cash, for liquidity. It’s pretty much the same now. It is time-tested, as we have managed this successfully for more than 10 years. We are confident and prepared for all kinds of market scenarios."

As per the stress test results, liquidation of 25 percent of Nippon India's Small Cap Fund can be done in 13 days.The mid-cap scheme would take 4 days to liquidate 25 percent portfolio while, it would take seven days to offload 50 percent of its portfolio.

Edelweiss Mid Cap Fund's assets under management (AUM) is around Rs 5,070 crore, while Edelweiss Small Cap Fund has an AUM of Rs 3,142 crore. As per the results of the stress test, Edelweiss Small Cap Fund would take three days for 50 percent portfolio liquidation, while Edelweiss Mid Cap Fund would take two days. A 25 percent portfolio liquidation in Edelweiss Mid Cap Fund could be done in one day, while the same for Edelweiss Small Cap Fund stands at two days.

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SEBI and The Association of Mutual Funds in India (AMFI) has asked members to disclose stress test results every 15 days to comply with a recent mandate from capital markets regulator Sebi. The purpose of the stress test is to ascertain how soon fund managers can liquidate their portfolios, if investors were to rush for redemptions under adverse market conditions. The first set of disclosures is expected on March 15.

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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.

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