As per data from the Association of Mutual Funds in India, investors are now becoming extra cautious when it comes to mid-cap stocks. The net inflows into mid-cap funds have reduced to only INR 279 crores in May 2020, which is the lowest in the past 14 months. This is also lower than the inflows into small cap funds in the month. Additionally, the share of mid cap inflows has reduced from an average of 20.5% to just 5.3% in the past one year.
The mid-cap funds have reported a lot of redemption pressure in this month. The ratio of the gross flow to gross outflow bears testimony to this.
In the pre-COVID period, the net inflows into mid-cap funds were quite steady. This happened even though the midcap index was underperforming the benchmark index for the past 12 months. The availability of various midcap stocks and attractive valuations that were fundamentally strong were major triggers for investors back then. As a result, the share of domestic funds in the NIFTY midcap 50 also rose from 10.7% to 11.3%. Also, the holding of domestic funds in the NIFTY Midcap 50 Index is greater than the NIFTY 50 index.
With an air of extreme caution, the trend has now changed. Analysts expect a severe earning downgrade for the mid-cap companies for the present fiscal year. The working capital will also now stretch significantly. Thus, investors are now concentrating with utmost attention on large-cap funds. In May 2020, large and multi cap funds accounted for almost half of the total inflows.
Both large and mid-cap funds are on the same footing when it comes to returns. Over the past year, mid-cap funds have lost 16.2%, as compared to the average 19% drop in the benchmark. 19 of 23 mid-cap funds have outperformed their benchmarks, while large caps funds lost 16.6% during this period.