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"\nNothing exists in a vacuum and the beginning of the end for the steroidal move post 2014 in small and mid caps started in late 2017 with the first tughlaqnama from a regulator who felt the need to wade into investment decision making because some rogue players thought the rules could be bent at will. Well, some three years later a second tughlaqnama tries to correct or plug holes left by the first. But guess what, tughlaqnamas have a fatal flaw, their collateral broad brush damage is sometimes worse than the excesses they try to address.Now, a new churn will likely ensue that might allow for some promoters to indulge in fund raisings that would transfer public money garnered by fund houses to corporates or private hands, not necessarily based on performance or worthiness but on arbitrary percentages of allocation or ease of deployment. While the intent of the regulation might be to provide &amp;quot;true diversification&amp;quot;, the real life issues of size and liquidity might be the restricting factors to follow the law in spirit. It is also possible that some allocators are just lazy and mimic their large cap funds while others might harbor misplaced ambitions reflected in concentrated holdings in few names. But to straight jacket the art of investment isn't to my mind the right solution, performance then becomes uniform and often mediocre and market lose their incentive for efficient discrimination.Between now and February 2021, a lot can change and the six month revival in the small and mid cap space could get a steroidal booster shot by these anticipated forced churns. Equally, we remain just a solitary event away from pricking a growing bubble that must eventually burst. Then, if liquidity dries up, this tuglaghnama is likely to produce some unforeseen outcome, because they almost always do.For starters, if the allocation has to be 50:25:25 between large:mid:small cap companies defined by another arbitrary definition of size where the small cap universe starts at around Rs 6500 crore market cap, how many names would have to be included in the larger funds, if overall AUM of the multi cap universe is Rs 1,50,000 crore. Conversely, will smaller funds be forced to take few concentrated bets making them more susceptible to volatility? I'm sure the next few days and weeks will bring out many pros and cons, till then, I wait for direction to emerge outside the 11,300 to 11,500 range on the benchmark.The author is an independent trader-cum-blogger and has worked at leading brokers on the institutional sales desk over the course of his near three-decade long career in the stock market.\n"
<https://www.cnbctv18.com/views/traders-diary-sebi-directive-on-multicap-funds-could-fire-up-mid-and-small-caps-6892161.htm>