The Dance of the Market Cap Segments
In October 2017, SEBI introduced guidelines to define large cap, mid cap and small cap stocks so as to ensure uniformity in respect of the investment universe for equity mutual fund schemes.
It indicated that the top 100 companies, in terms of market capitalization, would be considered as large cap companies, the 101st to 250th companies would be defined as mid cap companies and the 251st company onwards would be termed as small cap companies. (Read our article Are past returns relevant for mutual fund investors? for a quick refresher on the rationale behind SEBI’s classification and its impact on return comparisons.)
Under the new norms, every six months the list of large, mid & small cap companies is required to be updated based on the average market cap for the six month period ended June and December each year.
With data available until June 2019, we undertook a comparative analysis of how the three market-cap categories have fared since the introduction of the guidelines in December 2017. Here’s what we found…
Size seems to have mattered
Great variation across Large Cap performance
It is apparent from the table above that large cap stocks have seen the highest growth in terms of market cap. During the period of Jan’18 to June’19, this category saw an addition ofRs. 11.31 lac crores to its market cap, out of which Rs. 0.95 lac crores was added by just two new entrants, namely Bandhan Bank and HDFC Asset Management Company.
But the rising market cap was not across the board for all or even most stocks. While nearly 30 companies have seen a dip in market cap of more than 10%, 11 companies have seen their market cap increase by more than 50% (Refer Figure 1.1).
But clearly, some sectors were better placed than others. Among the top 10 sectors of large cap companies, IT- software saw the maximum rise in market cap followed by Private Banks and Household & Personal Products (Refer Figure 1.2). The market cap of these sectors rose by 3.3%, 2.2% and 0.9%, respectively, during this period.
Good and poor mid-cap performers even each other out
The market cap of midcap stocks has remained more or less flat, decreasing by Rs. 5,787 crores during this period. This segment too has new entrants, namely Hindustan Aeronautics Ltd, Adani Gas Ltd, Polycab India Ltd and AAVAS Financiers Ltd, who added Rs. 55,155 crores to the market cap.
Over a third of companies (52 in number) in the mid-cap universe lost more than 10% of their market cap whereas 20 companies saw a jump of more than 50% in their market cap (Refer Figure 2.1).
Once again, the sector story played out. Among the top 10 sectors of mid cap companies, Pharmaceuticals & Drugs saw the maximum rise in market cap followed by Retailing & Chemicals (Refer Figure 2.2). The market cap of these sectors rose by 0.6%, 0.5% and 0.4%, respectively, during this period.
Small caps indisputably lost value
There was a sharp decline of Rs. 1.2 lac crores in the market cap of small cap companies in the last 18 months. This was despite the fact that during this period, 20 new companies have been added to this category with a cumulative market cap of approximately Rs. 1 lac crores.
We, Ventura Securities Ltd, (SEBI Registration Number INH000001634) its Analysts & Associates with regard to blog article hereby solemnly declare & disclose that:
We do not have any financial interest of any nature in the company. We do not individually or collectively hold 1% or more of the securities of the company. We do not have any other material conflict of interest in the company. We do not act as a market maker in securities of the company. We do not have any directorships or other material relationships with the company. We do not have any personal interests in the securities of the company. We do not have any past significant relationships with the company such as Investment Banking or other advisory assignments or intermediary relationships. We are not responsible for the risk associated with the investment/disinvestment decision made on the basis of this blog article.