Varun Beverages, ABB India rise to MFs' largecap bucket after strong run-up

Varun Beverages, ABB India, Page Industries, and four other companies (Tata Elxsi, Bosch, Trent, and PI Industries) have entered the mutual fund (MF) industry’s large-cap companies list after a strong run-up in share price in the last six months of Calendar 2022 (CY22). They have replaced Muthoot Finance, Paytm, Bandhan Bank, Mphasis, Gland Pharma, and Piramal Enterprises, now consigned to the mid-cap bin.

Shares of Varun Beverages surged 67 per cent in the July-December period; ABB India rose 17 per cent. Other additions to the list like PI Industries and Trent gained 34 per cent and 26 per cent, respectively.

The Association of Mutual Funds in India (Amfi) releases a reclassified list of stocks every six months. Stocks that rank 1-100 in terms of full market capitalisation (m-cap) are classified as large-cap; stocks ranked 101-250 as mid-cap; and stocks ranked 251 and below as small-cap.

As a result, top mid-cap performers move to the large-cap list after every such exercise, pushing poor-performing large-cap stocks into the mid-cap basket.

The minimum m-cap to qualify as a large-cap stock rose from Rs 47,460 crore to Rs 48,900 crore during the previous reclassification.

In the case of mid-caps, the minimum m-cap rose from Rs 16,440 crore to Rs 16,800 crore.

The stocks that moved up from the small-cap to the mid-cap list are Timken India, Metro Brands, Blue Dart Express, Fine Organic Industries, UCO Bank, ZF Commercial Vehicle Control Systems India, Apollo Tyres, and KPIT Technologies, reveals an analysis by IIFL Securities.

The companies that have moved from the mid-cap to the small-cap space are Aavas Financiers, ICICI Securities, The New India Assurance, Godrej Industries, National Aluminium Company, Indian Energy Exchange, Chambal Fertilisers, and Tanla Platforms.

This bi-annual exercise by Amfi is in accordance with the Securities and Exchange Board of India’s 2017 circular mandating the categorisation of every listed company as large-cap, mid-cap or small-cap stock.

After the release of every new list by Amfi, fund houses have to realign their equity schemes to maintain the required m-cap-based allocation. As a result, new entrants to the large-cap list are likely to receive higher investments from large-cap-oriented MF schemes and a reduction in holdings by mid-cap-oriented schemes.

However, the change in categorisation does not necessarily lead to incremental inflow or outflow. The active MF managers keep an eye on the list whilst taking fresh or modifying positions in stocks in different categories of schemes, said Nuvama Alternative & Quantitative Research (Nuvama) in a report.

All companies that got listed in the second half of CY22 found mention in the small-cap list, except for Piramal Pharma Solutions that has entered the mid-cap list.

The report shows that 25 companies got listed in the second half of CY22, including Piramal Pharma Solutions. The other companies are Five Star Business Finance, Global Health, Bikaji Foods International, Tamilnad Mercantile Bank, Archean Chemical Industries, Keystone Realtors, KFin Technologies, among others.

A strong performance by Varun Beverages, ABB, and Page Industries is also expected to earn them a berth on the Nifty Next 50 Index.

According to a report by Nuvama, these companies are likely to get a place on the index at the March 2023 semi-annual rebalancing of the Nifty indices.