Largecap lineup likely to get a new cast: 9 new entrants, 9 exit stage

New script, new benchmark: Curtain to rise on a new act as largecap eligibility cut-off approaches Rs 1 trillion ahead of January review

Mutual funds’ (MFs’) largecap investment universe could see nine changes in the upcoming stock reclassification exercise by the Association of Mutual Funds in India (Amfi) in January 2025, according to early predictions by Nuvama Alternative and Quantitative Research.

The report indicates that Rail Vikas Nigam, CG Power & Industrial Solutions, ICICI Prudential Life Insurance, Indus Towers, and Cummins India are among the midcap companies likely to receive upgrades in the revised list.

The recently listed Bajaj Housing Finance is also among the probable largecap entrants.

Amfi revises the list at the beginning of January and July each year based on the previous six months’ performance of the stocks.

The top 100 companies, based on average market capitalisation (mcap) over the past six months, qualify as largecaps; the next 150 become midcaps, while the remaining stocks are classified as smallcaps.

The entry of these companies into the top 100 list will result in nine existing largecap stocks moving to the midcap category. Expected transfers include Adani Total Gas, Shree Cement, Union Bank of India, Mankind Pharma, and IDBI Bank, among others.

The classification of stocks into largecap, midcap, and smallcap categories helps fund managers stay true to label. Equity MF categories have set limits on the proportion they can invest in largecap, midcap, and smallcap stocks.

Smallcap stocks likely to transition to the midcap category include GE T&D India, 360 One WAM, Aditya Birla Fashion and Retail, Cholamandalam Investment and Finance Company, and Emami. Three new listings — Premier Energies, Ola Electric, and Brainbees Solutions — are also expected to secure a place in the midcap list, according to the report.

Interestingly, the cut-off for stocks to qualify as largecaps could approach nearly Rs 1 trillion after the latest review in January 2025 if the growth seen thus far this year in Indian equities continues.

The mcap cut-off for entry into the largecap list, which stood at Rs 25,587 crore in January 2020, surged to over Rs 84,000 crore by July 2024. In the case of midcaps, the threshold has more than trebled during the same period to Rs 27,560 crore.

Amar Ambani, executive director of Yes Securities, stated that after the introduction of categorisation norms, the lines between largecaps and midcaps, as well as midcaps and smallcaps, have slightly blurred. “The reclassification has skewed numbers to some extent. Today, many midcaps are comparable in size to largecaps, while larger smallcaps are now categorised as midcaps.”

The rising cut-off for largecaps has led to calls for increasing the number of stocks in the largecap category from the current 100. However, after consulting industry players, Business Standard has learnt that the market regulator, the Securities and Exchange Board of India, is unlikely to modify the formula in the near term.