- The short (flows, multiples, tone)
- Flows & valuations vs. history
- Liquidity reality: what breaks first
- DIY heat-check dashboard (indicators/table)
The short
- Flows: Equity MF inflows record in July; SIPs at new highs (₹28,464 cr; 9.11 cr accounts). Small-cap funds led net inflows.
- Valuations: Small/Mid PEs trade at a premium to Nifty50’s multiple; dispersion remains high.
- Regulatory tone: SEBI has cautioned on microcaps; monthly stress-test disclosures for small/midcap funds continue.
- What breaks: Microcap names with low float, high pledge, and high “days to liquidate” if redemptions spike.
Flows & valuations (context)
Retail bid still strong
- Equity MF net inflows hit a record in July 2025; SIPs crossed ₹28,464 cr with participation at scale.
- Segment-wise, small-cap funds led July inflows, followed by mid-caps.
- Foreign selling didn’t dent domestic flows materially in July.
Premium vs. history
- Recent prints show Nifty Smallcap 250 ~32× and Nifty Midcap 150 ~33× vs. Nifty50 ~22× (illustrative).
- High dispersion under the averages—screen for earnings quality, not just index-level PE.
Liquidity reality: where risk concentrates
- Days-to-liquidate From AMFI stress tests—watch schemes that need many days to sell 25–50% of book without price impact.
- % of free float High promoter/strategic holds can amplify gaps on exits.
- Turnover & spreads Thin ADV and wide bid-ask = gap risk on news.
- Pledge & dilution Elevated pledge, frequent preferential issues, or warrants magnify drawdowns.
- Ownership shifts Sudden FPI/insider selling, or MF concentration >8–10% of free float.
Tone SEBI’s recent messaging is “cautious on microcaps”, alongside continuing surveillance and product-suitability discussions.
Heat-check dashboard (DIY)
| Indicator | How to get it | Interpretation |
|---|---|---|
| SIP run-rate | AMFI monthly note | High & rising supports dips; deceleration = fragility |
| Stress-test: days-to-liquidate | AMFI scheme disclosures | >10–15 days for 25% book = vulnerability |
| Index PE premium | NSE data / broker dashboards | Small/Mid PE ÷ Nifty50 PE; >1.4× is stretched vs. history |
| Bid–ask / ADV | Exchange snapshots | Widening spreads + falling ADV = exit risk |
| Pledge ratio | Exchange filings | >25% pledge merits caution |
| Ownership concentration | Shareholding pattern | High MF/FPI concentration in micro float can amplify moves |
Pro tip: Pair valuation screens with liquidity screens—“cheap but illiquid” can still be a trap in stress.
Positioning lens (illustrative)
Constructive
- Quality smalls with cash conversion <45 WC-days
- Low-pledge, steady insider ownership, improving ADV
- Funds showing better stress-test resilience
Defensive
- Shift new money to flexi/large-mid where premiums compress
- Use SIP/STEP-UP instead of lumpsum in froth
- Avoid micro-cap baskets with thin float and story-only narratives