The Securities and Exchange Board of India (SEBI), recently circular tweaking asset allocation framework for multi-cap equity mutual funds has fired up small-cap stocks. The Nifty Small-Cap 100 index soared 5.2 per cent in trade on Monday. Nifty Midcap 100 index is up by over 2 per cent. Market analysts are expecting huge buying in mid and small-cap space by mutual fund houses amid Sebi’s announcement of new portfolio allocation rules which require multi-cap funds to invest a minimum of 25 per cent of their portfolio each in large-cap stocks, mid-caps and small-cap companies. Traders and short term direct stock investors will not let go of this opportunity to make gains while there is a buzz. Motilal Oswal Financial Services has listed five high conviction mid-cap and small-cap ideas which it expects to do well in short to medium term. ‘The stocks are fundamentally sound with good growth potential. One can buy this basket of 5 stocks with a potential upside of 10-15 per cent over a time frame of 1-3 months and keep a stop loss of 7-8 per cent on the overall basket,’ says the Report.

The mid-cap recommendations include ABFRL, JK Cements, Tata Power, Ashok Leyland and Dr Lal Pathlabs. Their small cap stock recommendations include Birla Corp, IEX, Team Lease, Essel Propack and KEI Industries. There can be a potential upside of 10 to 15% over one to three months. Investors should keep a stop loss of 7 to 8 per cent on the overall basket.

Multi cap funds constitute over 19 per cent of the total actively managed equity mutual funds AUM. It is the biggest category with large-cap schemes, also having a similar share in the total equity AUM.

Emkay Financial Services has also listed their top mid and small-cap stock recommendations for portfolio managers.