Elara Securities survey reports SEBI’s norms to impact 51 thematic funds

Elara Securities survey reports SEBI’s norms to impact 51 thematic funds

The move would require reshuffling of portfolios over the next three years for regulatory compliance

An analysis by Mumbai-based brokerage firm, Elara Securities, has revealed that the move to tighten norms for thematic and sectoral funds by the Securities and Exchange Board of India (SEBI) would impact dozens of schemes.

The survey stated that currently, 51 sectoral and thematic schemes breach the 50 percent portfolio-overlap threshold with at least one other scheme within the same fund house. However, the overlap was not high for the majority of the schemes.

Only 13 schemes, excluding those with assets less than Rs.1,000 crore, had an overlap of over 52 percent.

The report stated that the schemes would need to reshuffle their portfolios over the next three years for regulatory compliance. It estimated that the schemes would have to reallocate Rs.76,000 crore to reduce the overlap to 50 percent.

The Elara report added that, considering the three-year glide path, “the aggregate impact does not appear materially disruptive. The highest overlapping allocations are largely concentrated in highly liquid, large-cap names, where absorption capacity is significantly stronger.”

Meanwhile, the schemes with the highest overlap include Quant Momentum Fund (78 percent overlap with Quant Quantamental Fund), Motilal Oswal Business Cycle Fund (75 percent overlap with Motilal Oswal Multi Cap Fund) and Aditya Birla Sun Life Business Cycle Fund (63 percent overlap with Aditya Birla Sun Life Flexicap Fund).

Thus, the fund houses are likely to correct the overlap by reallocating the portfolio of the smaller of the two schemes.

The report mentioned that, as per practical portfolio management considerations, any realignment was likely to occur in the smaller scheme, as the execution impact would be relatively lower compared to adjusting the larger scheme.