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SEBI Categorization of Large Cap/Midcap and Smallcap.

SEBI in its circular https://www.amfiindia.com/Themes/Theme1/downloads/1507291273374.pdf has come out with a way of defining large-caps/midcaps/small-caps.

Observations from - Semi-Annual Review – Stock Mcap Classification
(AMFI Release-Jan-19) by Edelweiss

 

Analyse India Observations 

• There are 1624 companies in the NSE and 4649 companies on BSE as per the data.
• The cut-off for companies to be a Mid-Cap is 8600 crores. Any company less than that is a Small-cap.
• There are just 779 companies with an average 6 month market-cap higher than 1000 crores. So roughly around 529 companies in the band of 1000 to 8500 cr market cap.
• There are approx. 1700 companies with an average market cap of 100 cr.

The Contrast of AMFI/SEBI Categorization with NSE  Indices. 

The categorization is based on 6 months average Full Market Cap.

This is a stark contrast to the fact that all Mutual Funds are benchmarked to indices which have a free float market-cap methodology.

( Free Float Market Cap gives a higher weight to companies with lower promoter shareholding )

Another contrast is SEBI/AMFI wants low churn by Fund Managers and trying to limit the number of schemes etc and want them to be long-term investors but expect them to re-balance every 6 months on basis of price movements.

( Rule - Subsequent to any updation in the list, Mutual Funds would have to rebalance their portfolios (if required) in line with updated list, within a period of one month. )

The categorization of Stocks changes every 6 months and there is no limit to it. So a lot of stocks will keep changing from Large Cap to Midcap or Midcap to Smallcap and vice versa in the categorization.

In contrast, Nifty Index constituents can change every 6 months but have a limitation of only 10% of the constituents to be changed in a year for Nifty. Also replacing stock has to 1.5x free float market cap to the lowest weighted stock. For example, Nifty 500 can make 50 changes in a year and Nifty50 can do 5 changes in a year.

This difference of in categorization will keep leading to a major difference in Midcaps as per AMFI categorization and Midcap/Smallcap as per the NSE Indices.

Funds now have another headache as benchmarks and AMFI classifications do not match.

( An interesting read - http://www.analyseindia.com/midcap-funds-underperformed-in-2017-because-of-vakrangee-limited )

The difference in the categorization of Nifty Indices with AMFI categorization. 

12 Stocks of Nifty Midcap 100 are classified as Small Cap by AMFI classification based on SEBI Circular dated Oct 6, 2017

MANAPPURAM	Manappuram Finance Ltd.
MGL	Mahanagar Gas Ltd.
ENGINERSIN	Engineers India Ltd.
VGUARD	V-Guard Industries Ltd.
RELCAPITAL	Reliance Capital Ltd.
TV18BRDCST	TV18 Broadcast Ltd.
PRESTIGE	Prestige Estates Projects Ltd.
VAKRANGEE	Vakrangee Ltd.
AVANTIFEED	Avanti Feeds Ltd.
PCJEWELLER	PC Jeweller Ltd.
DBL	Dilip Buildcon Ltd.
SPARC	Sun Pharma Advanced Research

6 Stocks of Nifty Midcap 100 are classified as Large Cap by AMFI classification based on SEBI Circular dated Oct 6, 2017

 

DIVISLAB	Divi's Laboratories Ltd.
UBL	United Breweries Ltd.
PAGEIND	Page Industries Ltd.
IBVENTURES	Indiabulls Ventures Ltd.
BERGEPAINT	Berger Paints India Ltd.
LTI	Larsen & Toubro Infotech Ltd.

18 Stocks of Nifty Midcap 150 are classified as Small Cap by AMFI classification based on SEBI Circular dated Oct 6, 2017

AVANTIFEED	Avanti Feeds Ltd.
BLUEDART	Blue Dart Express Ltd.
DBL	Dilip Buildcon Ltd.
ENGINERSIN	Engineers India Ltd.
FINCABLES	Finolex Cables Ltd.
GET&D	GE T&D India Ltd.
JMFINANCIL	JM Financial Ltd.
KRBL	KRBL Ltd.
MGL	Mahanagar Gas Ltd.
MANAPPURAM	Manappuram Finance Ltd.
PCJEWELLER	PC Jeweller Ltd.
PRESTIGE	Prestige Estates Projects Ltd.
RELCAPITAL	Reliance Capital Ltd.
SPARC	Sun Pharma Advanced Research
SYMPHONY	Symphony Ltd.
TV18BRDCST	TV18 Broadcast Ltd.
VGUARD	V-Guard Industries Ltd.
VAKRANGEE	Vakrangee Ltd.

8 Stocks of Nifty Midcap 150 are classified as Large Cap by AMFI classification based on SEBI Circular dated Oct 6, 2017

BAJAJHLDNG	Bajaj Holdings & Investment Ltd.
BERGEPAINT	Berger Paints India Ltd.
DIVISLAB	Divi's Laboratories Ltd.
GSKCONS	GlaxoSmithkline Consumer
IBVENTURES	Indiabulls Ventures Ltd.
LTI	Larsen & Toubro Infotech Ltd.
PAGEIND	Page Industries Ltd.
UBL	United Breweries Ltd.

 

10 Stocks of Nifty 100 are classified as Mid Cap by AMFI classification based on SEBI Circular dated Oct 6, 2017

ABB	ABB India Ltd.
ACC	ACC Ltd.
ABCAPITAL	Aditya Birla Capital Ltd.
BEL	Bharat Electronics Ltd.
BHEL	Bharat Heavy Electricals Ltd.
LICHSGFIN	LIC Housing Finance Ltd.
NHPC	NHPC Ltd.
OIL	Oil India Ltd.
SRTRANSFIN	Shriram Transport Finance Co. Ltd.
SUNTV	Sun TV Network Ltd.

 

Link to the SEBI annual report - https://www.sebi.gov.in/reports/annual-reports/aug-2018/annual-report-2017-18_39868.html 

• FPI portfolio: Top 40 stocks Forty stocks account for 74% of FPIs’ equity portfolios in India
• Mutual fund portfolio: Top 40 stocks Forty stocks account for 63% of MFs’ equity portfolios in India
• LIC portfolio: Top 40 stocks Forty stocks account for 83% of LIC’s equity portfolio in India
• Of the 223 issues, 216 were from the private sector which raised ` 68,870 crore compared to 118 issues that raised ` 31,683 crore in 2016-17.
• In the cash segment, the turnover at NSE increasedby 43.1 per cent during 2017-18 compared to 19.3 per cent growth in the previous year. The turnover of BSE too increased by 8.5 per cent during 2017-18 compared to 34.9 per cent growth in the previous year.
• The turnover of all stock exchanges in the cash segment increased by 37.4 per cent to ` 83.2 lakh crore in 2017-18 from ` 60.5 lakh crore in the previous year.
• Of the aggregate turnover, NSE accounted for 87 per cent of the total turnover and BSE accounted for 13 per cent of the total turnover.
• Over the years, index options have emerged as the most traded instrument in the Indian derivatives market. During 2017-18, the share of index options in total turnover at NSE increased further to 81.8 per cent from 77.1 per cent in the previous year.
• So far, under mass media campaign, more than 67,980 TVCs, around 2, 25,040 radio spots, over 5,200 insertions in various print editions, around 962 screens in cinema halls were covered under the campaign. Further, around 53 crore bulk SMSes in various languages were sent cautioning investors against Ponzi schemes/unregistered CIS
• During 2017-18, the total amount of fees and other charges received was ` 624.44 crore (audited) as against ` 518.75 crore in 2016-17 (audited). The recurring fee was 48.90 percent in 2017-18 as compared to 60.70 percent in 2016-17 of the total fee collected. During the year 2017-18, the largest recurring fee of ` 78.00 crore was collected from Derivatives Members registration followed by ` 40.82 crore collected from Stock Brokers and Sub- Brokers. In non-recurring fee category, the highest fee was collected from Offer Documents and prospectuses filed (` 112.24 crore) followed by Buy Back of Share (` 106.12 crore) and Takeover Fees (` 29.70 crore).
• As on March 31, 2018 the total number of employees in various grades is 794 (including employees on deputation/ contract), out of which 698 employees are officers and 96 employees comprise secretaries and other staff. The male and female composition is 527 and 267, respectively.

There is a very long section on SEBI orders which is very interesting to see actions taken and how much time it takes.

Some more snapshots from the report

• Mumbai continues to be the leader in turnover.

• Free Float Market Cap at 45% of total market cap.

• Only 3121 stocks trade for more than 100 days.. No of listed maybe 5200.
• Only 1730 stocks have traded from more than 100 days regularly on NSE.

• CDSL catching up in terms of investor accounts but value-wise NSDL is way above.

• CDSL leads in geographical spread of DP locations.

• Options share increasing. But its due to calculation on notional value of the contract.

• Good increase in AUM and no of clients in PMS.

• AIFs picking up big time.

• Not a major jump in FPIs

• USA followed by Mauritius on in Assets Under Custody

• No of SME listings are ramping up in a very big way.

• Market cap is still small.

• Pending actionable grievances being reduced at a great rate.

• Sub Brokers reducing !!

• Given the high networth requirements doubt no of MFs are going to grow anytime soon.

• Way too much surveillance ?

In our last post we mentioned how Cartica Capital finds Page Ind. is reasonably valued at 90 PE

The interview was aired on 28^th June 2018

Looking at the Shareholding pattern of Page Industries we came across that holding of Cartica Capital has come down from 8,62,721 shares to 6,84,058 shares  between March to June 2018. Price range of Page Ind. during same time was 21800 to 27800

Shareholding of Cartica in Page Ind. over last 3 years

Quarter	No. of shares
June 2018	6,84,058
March 2018	8,62,721
September 2016	8,64,565
June 2016	8,69,465
September 2015	8,63,650

Price Chart of Page Ind

An interesting take from Cartica Capital which is the 2nd largest public shareholder in the stock after Nalanda.

Video Link - https://www.youtube.com/watch?v=BnoCjHHyjJU

Check 2.40 to 4.10 . The overall interview is also interesting.

You might want to read up on Modigliani Miller Model for valuation

Intimation under Regulation 30 about investment upto Rs.14.50 crores (USD 2.1 million) by way of acquisition of 21,00,000 equity shares of USD 1 each of SUN Mobility Investor Ltd.(Jersey)

https://www.bseindia.com/xml-data/corpfiling/AttachHis/9942e6e3-ef09-4c96-ac6c-3ac533796c69.pdf

http://www.sunmobility.co.in/ 

Khemka group has indirect control and ownership.

Investment is being done at book value of USD 1 per share.

Although the total investment is only 14.5 cr as of now. Will this be a good diversification or diworsification ?

Disclosure – No Holdings. Not a recommendation.

The picture below justifies the quote

“A great deal more fiction is written in Microsoft Excel than in Microsoft Word”

Also funnily the Dividend payout to face value is shown as return to shareholders

8 out of top 10 Mutual Fund Distributors by Commission are Banks. With more than 3200 cr of commission income in between them.

Strategy is Highly Biased ?

State Bank of India makes 99% of its mutual fund commission income from distributing schemes of SBI Mutual Fund.

SBI seems to have picked up distributing mutual funds only in last 3 years.

In last 1 year commission income has gone up from 178.7 cr to 557.9 cr !!!

Year	Commission Income
2017-18	557.9
2016-17	178.7
2015-16	62.12
2014-15	69.38
2013-14	28.95
2012-13	36.43
2011-12	30.76
2010-11	37.64

ICICI Bank gets 73% of the mutual fund commission income from distributing ICICI Prudential Mutual Fund.

But ICICI Securities only gets 18.5% of the commission income by distribution of ICICI Pru MF. Is it because one cannot buy Regular Plans through ICICI Direct but account holders have a choice to select their own preferred AMC ?

ICICI Securities Limited

316.53

58.45

18.5

Source Links

AMFI commission Disclosures -

Websites of respective Mutual Funds

In the last few years Mutual Fund Distribution has picked up in a strong way.

The number of mutual fund distributors with a pay-out of 1 cr plus has almost gone up 3.5 times since 2011-2012.

The top 20 distributors by commission paid

NJ IndiaInvest continues to be on top.

8 out of the top 10 distributors are Banks !!

Out of all the banks SBI has increased commission income to 557.9 cr from 178.7 cr last year.

Source Links

AMFI commission Disclosures -

Websites of Mutual Funds

Some of the interesting Insider Trading Disclosures from 1st Jan to 31st March 2018.

Insider Trading Dislcosures Analyse India 

We keep looking at Insider Trading/Bulk Deals for looking at interesting action and not necessarily buy or sell because of Insider Trading.

Although Insiders buying in a bear market has helped us pick interesting names a few years back.

Disclosure - No views on any of the stocks above and no recommendation. Please do your own research.