Why do the allocation of funds to large-cap, mid-cap and small-cap stocks as provided by Value Research differ from what is mentioned in the funds' fact sheets?
The allocations to the three capitalisation groups as provided by Value Research is different from what is stated in fund fact sheets because of the difference in the definitions of large-, mid- and small-cap stocks.
There is no standard definition to classify the stocks among the three categories. Each fund house has its own way of defining what they would call a large-cap or a mid-cap. At Value Research we use a definition that we have evolved - the one we believe best represents the way the Indian stock markets function. We classify large-caps as the smallest number of stocks that can together equal 70 per cent of the total market capitalisation of the BSE. Mid-caps are the smallest number of stocks that can equal the next 20 per cent of market capitalisation and small-caps are the remaining companies, whose market capitalisation will add up to almost 10 per cent of the market's total value.
We recalculate these categories once a month. Currently, we classify 79 stocks as large-caps, 236 as mid-caps followed by a long list of small-caps.
Since this is a relative measure, it is unaffected by a movement of the market as a whole. However, as individual stocks rise and fall with the rest of the market, they may move from one category to another.
Using our own classification enables us to compare the funds' portfolio on a common platform. In its absence, inter-fund comparisons would not have been possible as each fund would have had a portfolio allocation based upon its own classification of stocks.