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Fund managers are keeping cash in hand amid strong inflows and elevated valuations in the small and midcap space.
Stress data shows that nearly half of the schemes in the smallcap space are holding cash of 5 per cent or more at the end of February 2024.
By comparison, only 20 per cent of the midcap schemes had over 5 per cent cash in their portfolio during the same period. As of February 2024, smallcap funds had Rs 15,226 crore in cash.
The amount is 6.1 per cent of the total assets under management (AUM) of Rs 2.5 trillion. On an average, smallcap funds had 6 per cent cash.
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Cash in midcap funds stood at Rs 13,150 crore, which is 4.4 per cent of the AUM of nearly Rs 3 trillion. The average cash holding was 3.7 per cent, show the stress-test reports.
High cash holdings in MF portfolios indicate deployment challenges and fears of a price correction.
Strong inflows seen by small and midcap funds over the past one year have also led to an increase in cash levels.
Having sufficient dry powder is necessary considering that liquidity can be a challenge in the small and midcap space. The stress-test report showed that most big-sized schemes may take weeks to liquidate half of their portfolios.
Among schemes, Quantum’s smallcap fund has the highest cash holding as a percentage of AUM at 19 per cent. Edelweiss' smallcap fund is the only scheme which is fully deployed.
