See if your small-cap fund has these illiquid stocks

The first round of stress testing for investment trusts has concluded. Capital markets regulator Securities and Exchange Board of India (Sebi) has directed all mutual funds to assess their liquidity and how liquid their underlying portfolio actually is. Ta. The results of the first round showed that: Mid-cap funds take on average about 6 days to liquidate 50 percent of their portfolio, and small-cap funds take about 14 days to liquidate 50 percent of their portfolio. If the stock market crashes and investors rush for redemptions.

Rationale for removing the bottom 20% of the portfolio

Sebi asked the MFs to calculate the time required to liquidate 50% and 25% of the portfolio after removing the bottom 20% of the portfolio based on the liquidity of the scrip.

The main reason for excluding 20% ​​is that the stress test primarily targets 25% or 50% redemption scenarios. Therefore, the least liquid part is ignored. Fund managers typically prefer to sell more liquid stocks than illiquid stocks during adverse declines.

These illiquid stocks are usually microcaps that can turn into multibaggers. These are carefully selected and backed by excellent research. These are identified early in the business cycle and fund managers are likely to hold them for the long term until they achieve the desired returns.

Moneycontrol Personal Finance has compiled a list of stocks that are in the bottom 20 percent of the portfolio in terms of liquidity for all small-cap funds. Interestingly, this study shows that stocks that are on the illiquid list of one scheme are not necessarily on the illiquid list of another scheme. It depends on the amount of stocks, their weight and the number of stocks in the portfolio.

Here we have compiled a list of “least volume” stocks that are primarily in the bottom 20% of small-cap fund portfolios. Stocks are sorted based on 3x 10% of average daily trading volume (as per stress test calculations). Please note that some of the stocks listed below are not part of the illiquid list of the aforementioned schemes. Shares held by at least three schemes are taken into account. Source:ACEMF. Portfolio data as of February 29, 2024.

See also: Opportunity for market correction – New mid-cap stocks added by MF in February

elantus beck india
Number of small-cap funds with stocks in the portfolio: 3
1 year return: 65%
BSE market capitalization (full): Rs 6,522 billion

hawkins cookers
Number of small-cap funds with stocks in the portfolio: 3
1 year return: 2%
BSE market capitalization (full): Rs 3,295 billion

Lakshmi Machine Works
Number of small-cap funds with stocks in the portfolio: 3
1 year return: 37%
BSE market capitalization (full): Rs 14,764 billion

ICR
Number of small-cap funds holding stocks in the portfolio: 4
1 year return: 22%
BSE market capitalization (full): Rs 5,252 billion

See also: Small-cap funds are betting on these large-cap stocks to manage liquidity risk

Nilkamal
Number of small-cap funds with stocks in the portfolio: 3
1 year return: 1%
BSE market capitalization (full): 2,647 million rupees

vesuvius india
Number of small-cap funds holding stocks in the portfolio: 4
1 year return: 100%
BSE market capitalization (full): Rs 6,389 billion

Butterfly Gandhimati Appliance
Number of small-cap funds with stocks in the portfolio: 3
1 year return: -35%
BSE market capitalization (full): Rs 1,422 billion

See also: Microcap Multibagger Pharma Stocks Recently Added by MF

blue darts express
Number of small-cap funds holding stocks in the portfolio: 4
1 year return: -7%
BSE market capitalization (full): Rs 13,511 billion

TVS Holdings
Number of small-cap funds with stocks in the portfolio: 3
1 year return: 75%
BSE market capitalization (full): Rs 16,814 billion

VST Cultivator Tractor
Number of small-cap funds with stocks in the portfolio: 3
1 year return: 41%
BSE market capitalization (full): 2,623 million rupees

Also read: Microcap stocks sold by fund houses in 3 months

Divgi Torque Transfer System
Number of small-cap funds holding stocks in the portfolio: 4
1 year return: 21%
BSE market capitalization (full): 2,262 million rupees

Tatva Chintan Pharma Chem
Number of small-cap funds with stocks in the portfolio: 3
1 year return: -35%
BSE market capitalization (full): Rs 2,735 billion

See also: Tracking the multibagger: 5 stocks that jumped from microcap to midcap with AMFI rejigging

stylum industrial
Number of small-cap funds with stocks in the portfolio: 3
1 year return: 50%
BSE market capitalization (full): 2,522 million rupees

neogen chemicals
Number of small-cap funds with stocks in the portfolio: 6
1 year return: -4%
BSE market capitalization (full): Rs 3,294 billion

See also: Mid-cap multibagger chased by mutual fund schemes for retirement goals