'Investors must not take any knee-jerk action'

'I am not going to buy small- or mid-cap stocks at very high valuations if it doesn't make sense for the investors.'

The markets regulator, the Securities and Exchange Board of India, has sent the mutual fund industry into a tizzy with its recent order on multi-cap schemes which changes the minimum allocation in such funds.

Many fear multi-cap schemes -- a large category with assets of Rs 1.47 trillion -- will be forced to buy small- and mid-cap stocks at high valuations.

Nilesh Shah, bottom, managing director, Kotak Mutual Fund, and chairman of the industry body Association of Mutual Funds in India (Amfi), says investors should wait to see how things play out.

In an interview with Samie Modak, Shah says fund houses will build a consensus and then approach Sebi.

Will multi-cap schemes start realigning to the new framework immediately?

We run one of the biggest multi-cap funds.

Our objective is to manage the fund to enhance investor returns as well as to comply with the regulations.

With this dual aim, we manage the money.

I am not going to buy small- or mid-cap stocks at very high valuations if it doesn’t make sense for the investors.

So we will keep all options open with the interests of unitholders in mind.

We have time till February 2021 to make these adjustments.

What is your message to investors who are panicking after the announcement?

Our advice to investors is to not take a knee-jerk reaction.

Let things get clarified over the next couple of months before taking any call.

Will Amfi approach Sebi soon?

Amfi will take up the industry point of view with Sebi.

We don't have to write to them today.

We will discuss the issue among ourselves, reach a consensus and then bring it to the attention of the regulator.

What could have triggered this move?

Sebi is coming from a true-to-label point of view.

When you run a multi-cap scheme, it needs to have exposure to all the three - large-, medium- and small-cap stocks.

I don't think one can find fault with that.

At the same time, Sebi as our regulator, will not want us to blindly follow things.

And this includes buying stocks after valuations go up.

I don't think it is Sebi’s intention to make fund managers buy stocks at any price.

Their intention is to ensure things remain true-to-label.

There are concerns that small-caps will not be able to absorb that kind of demand?

Everything is linked to valuation.

The point on floating stock is valid.

But if there is less supply and more buying, valuations will go up as price goes up.

When I say valuations, I am giving a distilled view.