India asset manager stress tests show delays in exiting small caps
By Jayshree P Upadhyay
(Reuters) -Top Indian asset managers showed delays, in some cases up to 30 days, in offloading a fourth of their small- and mid-cap portfolio, according to results from stress tests conducted by fund houses.
A delay in exiting holdings of such stocks could defer the return of funds to investors, who expect to receive their money back within two to three days, as per current industry practice.
The fund houses are likely to need between less than a day and 30 days to exit a quarter of their small-cap portfolio, and a maximum of 17 days to exit a quarter of their mid-cap stocks.
If an equity fund takes longer than the usual two to three days to return investors' money, it could suggest relatively less liquidity, said Kaustubh Belapurkar, manager for research at Morningstar India, a firm specialising in mutual fund research.
"These numbers will act as a clear indicator for managers whether they should opt for a soft closure of these funds by stopping inflows."
Forty-five mutual fund houses that manage a small- or a large-cap fund published the results from the stress tests on their websites and on the website of the Association of Mutual Funds in India (AMFI), a lobby body for Indian fund managers.
This comes ahead of a deadline set by the market regulator, which has cautioned investors about a build-up of froth in the small- and mid-cap segments of the market.
India's Nifty mid-cap 100 and Nifty small-cap 100 have fallen 4.8% and 5.49%, respectively, following the regulator's warnings on Monday.
According to data from AMFI, India has 27 small-cap funds and 29 mid-cap funds, managing 2.4 trillion rupees ($28.93 billion) and 2.9 trillion rupees respectively.
Funds must allocate a minimum of 65% of their assets to small-caps to be classified as small-cap funds, with the remaining 35% potentially in cash or large-cap stocks. The same rule applies to mid-cap funds.
Inflows into these funds have surged over the past year, leading to a sharp increase in stock prices of small- and mid-cap funds.
Among the disclosures, SBI Mutual Fund required the longest time of 30 days to liquidate 25% of its small-cap portfolio, followed by HDFC Mutual Fund, which said it needed 21 days.
Fund houses have been fairly quick in liquidating their mid-cap holdings, with only three funds taking more than 10 days to return cash to investors. Kotak Mutual Fund took 17 days to liquidate 25% of its portfolio, the longest among peers.
($1 = 82.9590 Indian rupees)
(Reporting by Jayshree P Upadhyay; Editing by Dhanya Ann Thoppil and Janane Venkatraman)
