Mid and small-cap mutual fund schemes have delivered negative 6 percent returns in the one week period ended May 25, under-performing the large-cap funds category.
Mid-cap funds delivered negative return of 5.41 percent, while smallcap funds gave 5.85 percent return in the week ended May 25. In the same period, large cap funds category delivered negative return of merely 2.35 percent.
In one month to May 25, too, the mid-cap category gave negative returns of 3.2 percent, while small-caps delivered negative 3.4 percent return, while large cap category gave 23 percent returns.
In comparison, BSE Sensex rose 2.69 percent, BSE Midcap and BSE Small Cap index fell 4 percent and 3.3 percent, respectively.
"Mid & small-caps had rallied more in the last one year; therefore, the correction is also higher in mid & small-caps vs large-caps," said Gautam Duggad, Head, Research at Motilal Oswal Securities.
Fund managers, too, concurred with Duggad's view and said that the valuations of mid-cap and small-cap companies were expensive and correction was expected.
The sharp run-up in mid-cap stocks has made them relatively costlier as compared to the broad index. Based on valuations the BSE MidCap index is trading at a historic price-to-earnings (PE) of 37.69 times, which is higher than that of Sensex that trades at 21.76 times.
In the one-year period ended May 25, the mid-cap and small-cap categories offered 29 percent and 35 percent average returns, respectively.
According to the data on Morningstar, the worst hit mid-cap funds in one week were -- Motilal Oswal MOSt Focused Midcap 30 Fund-Regular Plan (-4.34 percent), Baroda Pioneer Midcap Fund (-4.12) and Motilal Oswal MOSt Shares M100 ETF Fund (3.82 percent)
Similarly, the worst performing small-cap funds in one week were--DSP BlackRock Micro Cap Fund (-3.53 percent), HSBC Midcap Equity Fund (-3.40 percent) and Union Small & Midcap Fund (-3.25 percent).
Experts are getting a bit jittery on the mid-cap valuation as the difference in the valuation of BSE Sensex and BSE MidCap index is in an overbought zone. Such outperformance of midcap indices lasted for a short span of time in the past. But this time around, the stellar show is lasting for a longer time.
There are several reasons for this disparity. Stocks comprising the midcap space are generally domestic plays, while stocks in the large-cap basket are global players with exports accounting for a significant portion of their sales. With a global slowdown investors piled on midcap stocks where probability of growth was higher.
With the risks increasing in this space, experts are advising investors to take a break from their mid-cap addiction.
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