Most of the stocks lapped up by fund managers are because of attractive valuations. Looking at stocks where mutual funds have increased stake could be a good starting point
While the Indian market has fallen more than 10 percent in the past year, fund managers have used the volatility to raise stake consistently in more than 150 stocks in the same period, data from AceEquity showed.
There are as many as 156 BSE stocks where fund managers have raised stake consistently in the last 4 quarters. The stocks include Jubilant FoodWorks, Shree Cement, CRISIL, Tata Consumer Products, Gujarat Gas and GMM Pfaudler.
Out of those, 30 top stocks rallied 10-200 percent in the last one year. Two stocks which more than doubled investors’ money are Alkyl Amines, and GMM Pfaudler.
Table: Top 30 stocks with MF holdings in each quarter (in %)
“Over the last 4 quarters, fund managers have gradually increased exposure in beaten-down sectors like Cement, Pharma, Power to name a few. This is a clear indication that the fund managers are moving on from cyclical sectors to search for more stability and better performance in the portfolio,” Amit Singh, Head, Investica - an online platform for investing in mutual funds, told Moneycontrol.
“With the recent market fall, the valuations of tail end large-cap and mid-cap companies have gone down significantly making them a good buy from a risk-reward point of view. While the economy will take some time to recover, investors should be careful while investing in individual stocks,” he said.
Stocks in which fund managers have raised the stake should only be taken as a reference point for stock selection. Investors should evaluate the company on their own based on their risk profile before pressing the buy button, suggest experts.
Also, it is difficult to say when fund mangers’ entered a particular stock, and what is the time horizon? Consistent addition of stake does add to confidence, but investors should stick to fundamentally strong companies amid rising volatility.
On the other hand, out of 156 companies in which fund managers have raised their stake, 116 have given negative returns, and 101 companies have fallen 10-70 percent in the last one year.
There are more than 100 companies that have fallen in double digits in the last one year in which fund managers have raised the stake. The list includes names like Delta Corp, Chalet Hotels, Cyient, Chennai Petro, Arvind Fashion, and Tejas Networks, etc. among others, data from AceEquity showed.
Table: 22 stocks that fell more than 50% in past year with MF holdings in each quarter (in %)
“The recent downfall had resulted in the stocks to correct a lot and most of them are trading at cheap valuations. As Fund managers buy stocks for the long term, so there is no surprise that they are relatively more interested in acquiring or increasing stakes in the companies of their desire,” Nitin Shahi, Executive Director, Findoc told Moneycontrol.
“As mentioned earlier fund managers do not buy for short term and this shows their confidence in the long term story of the country. Investors should consider it and can shortlist stocks or sectors which they are comfortable with,” he said.
What should investors do?
Investors should use the list as a reference point for making investments, and not blindly follow what fund managers are doing.
Most of the stocks lapped up by fund managers are because of attractive valuations and most are of good pedigree. Sorting stocks where mutual funds have increased stake could be a good starting point, suggest experts.
“While one could follow somebody's investment style, investment decisions should always be based on company financials and cash flows and relevant return ratios and most importantly confidence in the management,” Paras Bothra, President of Equity Research, Ashika Stock Broking told Moneycontrol.
“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.