Small-Cap Mutual Funds Bear the Brunt of Market Decline

The Indian stock market experienced significant turbulence on Tuesday as early trends in the Lok Sabha election results suggested an unclear victory margin for the Modi-led alliance. This uncertainty led to widespread selling across various indices, with the mid-cap and small-cap indexes particularly affected. The mid-cap index fell by 7.88%, while the small-cap index declined by 8.23%, marking one of the worst days for the mid-cap index since March 13, when stress tests of mutual funds were a major concern.

Small-Cap Mutual Funds Decline

The broader market downturn significantly impacted small-cap mutual funds, with many experiencing notable declines in their Net Asset Values (NAV). The uncertainty surrounding the election results added to the volatility, leading to a sharp decrease in investor confidence.

Among the small-cap mutual funds, the ITI Small Cap Fund – Direct Plan witnessed the most significant decline, with its NAV falling by 8.42% from Rs 28.838 to Rs 26.409. The Baroda BNP Paribas Small Cap Fund – Direct Plan followed closely, dropping by 8.27% from Rs 12.783 to Rs 11.726. Similarly, the Quant Small Cap Fund – Direct Plan and Mahindra Manulife Small Cap Fund – Direct Plan saw declines of 8.26% and 8.17%, respectively. The Axis Nifty Smallcap 50 Index Fund – Direct Plan also experienced a substantial drop of 7.47%.

Weekly Performance of Small-Cap Mutual Funds

Over the past week, the performance of small-cap mutual funds has been particularly affected, with several funds showing significant negative returns. The Axis Nifty Smallcap 50 Index Fund – Direct Plan recorded a weekly return of -6.71%, with a one-month return of -6.86% and a one-year return of 53.73%. The Kotak Nifty Smallcap 50 Index Fund – Direct Plan and Aditya Birla Sun Life Nifty Smallcap 50 Index Fund – Direct Plan also showed similar declines with weekly returns of -6.69% and -6.68%, respectively.

The HDFC NIFTY Smallcap 250 ETF and the Motilal Oswal Nifty Smallcap 250 ETF also recorded weekly declines of 6.41%, marking one of the worst weekly performances in recent times for these funds. Despite these short-term losses, it’s notable that the one-year returns for many of these funds remain positive, reflecting the broader market’s recovery over the past year.

Conclusion

The recent market volatility, triggered by the uncertain election outcomes, has led to significant declines in small-cap mutual funds. The ITI Small Cap Fund – Direct Plan and Baroda BNP Paribas Small Cap Fund – Direct Plan were among the hardest hit, with NAV drops of over 8%. Over the past week, funds like the Axis Nifty Smallcap 50 Index Fund – Direct Plan and Kotak Nifty Smallcap 50 Index Fund – Direct Plan have also seen substantial losses. While the short-term outlook remains uncertain, the long-term performance of these funds suggests resilience in the face of market fluctuations.

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Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. The information is based on various secondary sources on the internet and is subject to change. Please consult with a financial expert before making investment decisions.