Association of Mutual Funds of India (AMFI) was required by the Securities and Exchange Board of India (SEBI) to prepare a list of companies eligible for mutual fund investment as per the new SEBI norms. This list is out and available on the AMFI website. In this article, we explain what the list is and how it works.
Why it matters
According to the SEBI classification system
Large-cap equity funds must invest at least 85% of their assets in the top 100 companies by market capitalisation
Mid-cap equity funds must invest at least 65% of their assets in the 101st to 250th largest company by market capitalisation
Small Cap equity funds must invest at least 65% of their assets in companies below the top 250 by market capitalisation
So which are the top 100 or 250 companies exactly? SEBI delegated the task of identifying them to AMFI. The regulator also laid down certain norms that AMFI had to follow. It laid down that if a stock is listed on multiple exchanges, the average market cap of the stock on the different exchanges is to be taken. If a stock is listed on only one exchange, the market cap of the stock as per that exchange is to be taken. The data must be updated and released on the AMFI website at the end of June and December of every year, within five calendar days from the end of each six month period.
What’s on the list
The full list of companies listed in India compiled by AMFI includes 5,248 companies. It goes from the largest listed company, Reliance Industries (at the end of December 2017) to the smallest one with a near-zero market cap. The combined market cap of all these companies is Rs 140.70 lakh crore. The top 100 companies account for about 68% of the combined market cap of these companies. The top 250 companies account for 84% of the combined market cap of these companies.
According to AMFI data, India’s largest company at the end of 31st December 2017 was Reliance Industries. It was followed by TCS, HDFC Bank, ITC, HDFC and HUL. Reliance had a market cap of Rs Rs 5.48 lakh crore and TCS had a market cap of Rs 4.9 lakh crore. That order may have changed dramatically with the recent surge in the market cap of TCS.
The 100th largest company, interestingly enough, is Vakrangee which has lately been in the eye of a storm. The stock is down from Rs 420 on 1st Jan 2018 to just Rs 77.45 on 8th May 2018. According to Value Research Data, Edelweiss Mutual Fund held 4.3% of the stock at the end of December 2017 and ICICI Mutual Fund and Motilal Oswal Mutual Fund held 0.2% each. However, by the end of March 2018, Edelweiss Mutual Fund had exited the stock.
The 101st largest company is Colgate-Palmolive (India) Ltd. with a market cap of Rs 29,255 crore. It is followed by MRF, SAIL, P&G and Emami. The list ends at Mannapuram Finance with a market cap of Rs 8,584 crore.
The list of small cap stocks begins from this point with V-Guard Industries with a market cap of Rs 8,580 crores. It is followed by L&T Technology Services, Hexaware Technologies, Suzlon, Asahi India Glass and Pfizer. Thus one can observe that even small-cap stocks have some quality names in them. The small-cap list trails into tiny companies with market cap of just a few crores and then a few lakhs.
This list is important because movement in and out of it will force mutual funds to exit certain companies. You can find the full AMFI list here.