ICICI Pru AMC’s veteran fund manager S Naren said last week that investors should be careful regarding SIP investments in mid and small-cap stocks. Speaking at the IFA Galaxy 2025, Naren said, “We think it is a clear time to take out lock, stock, and barrel from small- and mid-caps.” Naren highlighted that 2025 could be the most dangerous year since 2008-2010 period when investors had lost a lot of their money, particularly in banks. However, he added that in today’s time, most of the risk lies with retail investors. He explained that now when companies are looking for capital for their new projects, they are no longer dependent on banks. What they do instead, is raise the funds directly from equity investors via IPOs or QIPs (Qualified Institutional Placements).
Naren highlights investors’ blind trust over SIPs
Naren mentioned that fund managers invest money based on the funds they receive, whether it’s in mid-cap or small-cap funds. This means that even though the valuations are already high, new investments are still pouring into these areas, which is what is driving more equity capital raises. He also said that it is quite evident from the balance sheets of banks, that they are taking minimal risks, and the real risk is being taken by investors, which they themselves are yet to realise. He urged these investors to ponder over this more.
The veteran fund manager went on to highlight that mid and small-cap valuations are quite high as compared to 2013-14. He said that investors are assuming that SIPs will shield the from volatility while simultaneously putting their money into small- and mid-caps.
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Momentum in small and mid-caps beginning to weaken
Naren further cautioned that the momentum in small and mid-cap stocks is starting to fade. He said that the trend is beginning to break and that they’ve dropped below their daily moving average. He explained that although mutual funds are seeing record inflows, it has resulted in too much leverage which is now a big issue.
Naren advised the investors to consider investing in hybrid schemes. For example if one is optimistic about the market, then equity-debt hybrid funds should make more sense to invest in. And if not confident, then multi-asset funds are the way to go.
Naren’s comments spark debate, Radhika Gupta reacts
Naren’s comments sparked a debate on social media soon after. Radhika Gupta, CEO of Edelweiss Mutual Fund took to X and wrote, “do not fall for the fear-mongering 10-day debates.”
Gupta shared four important points for investors to keep in mind. The first one she said was to take a balanced approach, and that includes both mid and small-cap stocks. She said that even a typical flexi-cap fund has about 30% of its investment in this category. The second point she raised noted that if one looks at the returns from the peak to the lowest point (like from 2006 to 2013), they may not look very good, but that’s common in the market.
In the third point she highlighted how liquidity is crucial and can be managed carefully. She added that their funds have been transparent about liquidity numbers even before regulators asked, and they maintain good liquidity without taking big risks in cash or relying too much on large-cap stocks.
Lastly, the most important thing to remember she said, is the point to make money. She said that it’s essential to stay invested in SIPs for the long term, ideally 10 years or more.
Gupta added that holding investments for the long haul is the best way to see growth and avoid short-term market fluctuations.
