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Small and midcaps facing valuation concerns and caution from SEBI. Investors advised to assess risk appetite and liquidity needs. Proper asset allocation crucial for managing risk. Long-term investors should stay invested despite current market conditions.
“Our valuations are undoubtedly above average but our profit-to-GDP ratio is also more than above average. It is not that there is a big bubble but the road definitely is downward sloping,” Shah says. Excerpts:
India's market regulator, SEBI, has asked money managers to restrict investments in small- and mid-cap stock mutual funds and reduce commissions. The move aims to curb surging inflows into these funds and address the extraordinary exuberance in small- and mid-cap stocks.
Large and midcap funds are a category where as per regulatory requirements, the fund manager has to invest at least 35% of the corpus in large-cap stocks, 35% in mid-cap stocks, and the balance 30% is left to the fund managers discretion
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. The Securities & Exchange Board of India (SEBI) has also been reviewing stress tests conducted by such funds, sources have previously said.