Be cautious! Fund managers pare stake in over 60 stocks over last year

Stock selection is the most important parameter when it comes to long-term wealth creation. If you are invested in the right stocks, you will be rewarded while if the stock selection is poor then the possibility of erosion of capital remains high.

There are as many as 64 stocks in which fund managers have reduced stake consistently in the last four quarters. The fall in stake could also be related to booking of partial profits while for the rest, fund managers could be turning cautious.

More than 70 percent of the companies, or 48 out of 64 companies, have given negative returns to investors in the last year. Out of 48, there are 20 stocks that have fallen over 50 percent.

The 20 stocks include Wonderla Holidays, PNB, Union Bank of India, Canara Bank, Equitas Holdings, PNB Housing Finance, Future Retail, Indian Bank, and HSIL, data from AceEquity showed.

Even though some of the stocks have risen despite fund managers reducing their stake, experts feel that investors should stay cautious, and avoid these stocks.

However, no decision should be taken in isolation, and investors should consult their financial advisor or do their own analysis before making a buy or a sell decision.

“Fund managers are considered as experts of their profession and they had their past record to speak for themselves. It is better to avoid stocks in which they are consistently reducing their stake as they are more capable of analyzing stocks,” Nitin Shahi, Executive Director, Findoc told Moneycontrol.

“Investors should be wary of such activities of various funds and try avoid betting on these stocks. Fundamental aspects like ROE, ROCE, profit growth over the years remain the main factors to acquire any stock,” he said.

Paras Bothra, President of Equity Research, Ashika Stock Broking suggest investors avoid following somebody's investment style because investment decisions should always be based on company financials and cash flows and relevant return ratios and most importantly confidence in the management.

“In these challenging times, companies run by strong management and having strong business models will overcome quickly,” he said.

Disclaimer: The views and investment tips expressed by experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.