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Smallcap funds stuck in liquidity mud
Business Standard
|March 24, 2025
SELL-TIME DRAGS: 37 days needed to clear 50% of holdings
Weak market sentiment until February has eroded stock trading volumes over the past five months, straining liquidity in smallcap mutual fund (MF) schemes.
Stress test data shows that the 10 largest smallcap schemes now take an average of 37 days to liquidate half their portfolios, up from 28 days in September 2024. This increase came despite nine of these schemes raising cash reserves, shifting towards largecaps, or both during the market correction.
The drop in trading volumes is evident in the daily average cash turnover, which fell to ₹93,000 crore in February 2025 across both exchanges—the lowest since November 2023.
The market has been on a downtrend since late September 2024, with benchmark indices declining for five straight months through February 2025.
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