Recent stress test data from asset management companies (AMCs) regarding small and mid-cap mutual funds reveals a concerning stability in liquidity since February. As of August, it would take between 19 days (Axis Small Cap) and 53 days (SBI Small Cap) to liquidate 50% of their portfolios in a stress scenario, showing minimal change from February’s figures of 28 and 60 days, respectively.
For mid-cap funds, the time to liquidate half the portfolio ranges from 8 days (Motilal Oswal Mid Cap) to 30 days (HDFC Mid-Cap Opportunities), only slightly differing from February’s data of 10 and 23 days.
What is a Stress Test? Stress tests are mandatory disclosures mandated by SEBI for all mutual fund houses, aimed at assessing liquidity under stressful conditions. Fund houses must report how long it would take to liquidate 25% and 50% of their portfolios, as well as their cash allocations to meet redemption demands. The results, which also include volatility metrics like annualized standard deviation and portfolio beta, are published monthly on the AMFI website.
At the end of August 2024, small-cap schemes managed ₹3.19 lakh crore, while mid-cap schemes totaled ₹3.84 lakh crore, compared to ₹3.68 lakh crore for large-cap schemes. This data highlights ongoing concerns about liquidity in these market segments, suggesting that the risk profile remains elevated despite a stable environment.
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