What are some of the mid cap and small cap stocks worth buying after the multi-cap ruling by SEBI?

On 14 September, most of the mid caps rallied sharply on the back of expectations that the multi-cap story would lead to frenzied buying. While that may not directly impact the attractiveness of the smaller stocks, one can look at some attractive stocks.

Some of the stocks that surged on 14 September among the smaller names include City Union Bank, Federal Bank, RBL Bank, IDFC First Bank, Bandhan Bank, YES Bank, Indian Bank, and Union Bank. It is expected that MFs may gravitate towards smaller banks.

However, the funds are likely to be more stock specific and selective in their approach. The focus will be on companies with strong balance sheets, proper governance practices, and the ability to withstand technology shocks. BFSI fits best into this definition.

Some of the brokers have also been selectively picking up MFIs apart from banks and NBFCs with some of the picks being Ujjivan Small Finance Bank, M&M Financial, Sundaram Finance, Cholamandalam Finance, AU Small Finance Bank and Federal Bank.

However, IIFL Research has also cautioned that the rally in small cap stocks would be intermittent but hard to sustain. However, they remain positive on small companies with high quality management and strong growth outlook like AU SFB and CDSL.