Flexi-cap fund managers maintained a cautious stance on mid- and small-cap stocks in April despite strong market performance, according to an analysis by PrimeMF Database. Mutual fund schemes across fund houses increased their average allocation to mid-caps by only 0.9%, from 17.93% in March to 18.83% in April. Allocation to small-caps rose by 1.44%, from 16.66% in March to 18.10% during the same period. This conservative approach came despite a sharp rally in these segments, with BSE mid-cap and small-cap benchmarks gaining 13.81% and 19.61% respectively, significantly outpacing large-cap benchmarks which rose 6.9% and 7.5%.
Among flexi-cap schemes, 11 funds increased large-cap exposure by between 0.36% and 8.22%, with LIC MF Flexi Cap Fund showing the highest increase at 8.22%. Conversely, 33 schemes reduced large-cap allocation by between 0.46% and 9.51%, with Samco Flexi Cap Fund showing the steepest cut at 9.51%. This mixed approach reflects fund managers' selective positioning within the large-cap segment despite the overall cautious stance on mid- and small-cap exposure.
In the mid-cap segment, 28 schemes increased exposure by an average of 2.01 percentage points, ranging from 0.12% for The Wealth Company Flexi Cap Fund to 12.26% for LIC MF Flexi Cap Fund. Meanwhile, 16 schemes reduced exposure by an average of 1.06%, with cuts ranging from 0.03% for Tata Flexi Cap Fund to 3.13% for Shriram Flexi Cap Fund. In the small-cap segment, 34 schemes increased allocations by an average of 2.1%, ranging from 0.05% for Sundaram Flexi Cap Fund to 11.93% for Samco Flexi Cap Fund. Nine schemes reduced small-cap exposure by an average of 3.22%, with cuts ranging from 0.01% for Mirae Asset Flexi Cap Fund to 16.60% for LIC MF Flexi Cap Fund.
According to Alok Singh, CIO and Head of Investment at Bank of India Mutual Fund, several fund managers and investors remain wary of mid- and small-cap segments due to concerns around inflation stemming from the West Asia conflict. "Historically, inflation tends to impact companies with smaller balance sheets more severely," Singh noted. He added that the slow recovery in many small-cap stocks following the market correction that began in September 2024 is another factor behind the cautious stance. Singh's fund house expects the inflationary impact of the geopolitical conflict to be lower than anticipated and has therefore increased exposure to mid- and small-caps in its flexi-cap schemes.
As reported by Sandeep Tandon, CIO and money manager at Quant Mutual Fund, the fund house is selectively increasing exposure to mid- and small-cap stocks while remaining cautious about overall allocation increases. The fund house remains bullish on sectors such as power, data centres, pharmaceuticals, renewables and battery storage within the mid- and small-cap universe. Tandon noted that there are still players who are not convinced about increasing allocations to these segments yet, indicating continued divergence in fund manager approaches to mid- and small-cap exposure.
