The Association of Mutual Funds in India or AMFI aims to develop the mutual fund industry in India. The latest reclassification by AMFI has pushed the public sector companies such as Steel Authority of India Limited (SAIL), Bank of Baroda and NMDC from the mid-cap segment to the large-cap category.
Moreover, Adani Total Gas, Apollo Hospitals, Cholamandalam Investment and Finance Company and Honeywell Automation India have moved up from the mid-cap to the large-cap category. You have these changes adopted from the period of July to December 2021. How has AMFI reclassified the large-cap segment?
What is market capitalisation?
You have the market capitalisation, also called a market cap, as the aggregate valuation of a company based on the total number of outstanding shares and its current share price. In simple terms, the market value of all shares held by the company’s shareholders is called market capitalisation.
Suppose the shares of a company are listed on a stock exchange such as the NSE or BSE. If a company has 5 lakh shares currently trading at Rs 400 each in the stock market, the firm’s market capitalisation is Rs 20 crore.
According to SEBI classification, the top 100 companies in terms of market capitalisation are called large-cap companies. Moreover, the firms ranked from 101 to 250 depending on their market capitalisation are called mid-cap companies and those beyond 250 categorised as small-cap companies.
Why has AMFI introduced seven new companies to the large-cap category?
AMFI, through its latest reclassification, has pushed seven companies from the mid-cap segment to the large-cap category. The stock market has been rising steadily over the last year, and the cut-off for the large-cap category has been raised from Rs 28,900 crore in January 2021 to Rs 37,700 crore. Moreover, the cut-off for the mid-cap category has been raised from Rs 8,389 crore to Rs 11,800 crore after the January classification.
You have the stocks of these seven companies recategorised from mid-cap to large-cap performing exceedingly well. It has offered returns in the range of 100%-400% in the last year. You have the re-categorisation helping companies such as Apollo Hospitals and Adani Gas gather more funds as these companies currently have low exposure to active equity schemes.
As per SEBI rules, fund managers can invest only up to a maximum of 10% of the corpus of the scheme in one company irrespective of the performance. It helps protect investors from business risk in case a single company underperforms.
You have AMFI reviewing the market capitalisation of all listed companies on the stock exchange once every six months, followed by reclassification. Moreover, mutual fund houses readjust their portfolios to match new classifications based on the revised AMFI list.
You also have Hindustan Petroleum Corporation (HPCL), Hindustan Aeronautics (HAL), Indraprastha Gas, Petronet LNG, Abbott India, Alkem laboratories and PI Industries downgraded from the large-cap category to the mid-cap segment.
After the AMFI rejig, 11 stocks in the small-cap category have moved to the mid-cap segment. Moreover, 15 mid-cap stocks have also been downgraded to the small-cap category. You have Indigo Paints, Sona BLW Precision Forgings, Indian Railway Finance and Macrotech making an entry from the small-cap category into the mid-cap segment. Moreover, mutual funds have one month to align their portfolios according to the new AMFI classification.
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