Out of the 138 stocks which witnessed increase in weightage on a year-on-year basis, as many as 14 stocks saw a correction of 20-80 percent in the last 1 year
When it comes to hunting for stocks, investors depend on their financial advisors or do their own research. To that end, analysing the portfolio of foreign investors as well as mutual funds can certainly help retail investors shortlist a few stocks.
We analysed portfolios of foreign investors (FIIs) and mutual funds (MFs) not just for one quarter but for the last four quarters and found that there are as many as 138 stocks that are common in both the portfolios.
Also, it was noticed that FIIs and MFs increased their stake in these stocks in the last one year on a year-on-year basis.
Out of the 138, as many as 14 stocks saw a correction of 20-80 percent in the past one year. The list includes 8K Miles, CL Educate, Bharti Infratel, Bhansali Engineering, Balaji Telefilms, BHEL, Ambuja Cements, Dixon Technologies and Amrutanjan Health, according to data collated by AceEquity.
Data suggests some of the stocks that witnessed tremendous selling pressure in the last one year were also on the radar of FIIs and MFs, but can they be considered a smart buy at current levels?
Experts suggest investors should remain cautious and avoid betting on stocks which have fallen, and focus on stocks which have quality management.
“Indian market is moving in a secular uptrend and every 10-15% correction can be capitalized as a buying opportunity,” Ritesh Ashar, CSO, KIFS TradeCapital told Moneycontrol.
“Stocks like Axis Bank, Ambuja cement, Amrutanjan, Ashok Leyland are clearly moving in a secular uptrend along with the Indian market and such kind of stocks have great potentials to give a handsome amount of return with fundamentally strong background and the current rate after the correction,” he said.
The next big question is should investors consider investing in stocks which are part of FII or MF portfolio? It depends on the investment horizon of an investor, along with risk taking ability and not to forget that the weightage of that stock will keep on changing in smart investors’ portfolio which should be tracked.
“Chasing a stock on the basis of the rationale that MFs and FIIs have bought the same is not a very wise strategy. Every Mutual fund or an FII fund has a mandate and a strategy as to why they buy a stock like a contra fund, or a small-cap fund, thematic fund etc. and that strategy might not be same for every individual investor,” Shailendra Kumar, CIO at Narnolia Financial Advisors told Moneycontrol.
“Buying individual stock for a long term should be backed by fundamental research of business, management, and financials. Top down and bottom up approaches work in all kinds of markets. But, it is about what an investor is good at and comfortable at,” he said.
Kumar further added that top down helps in allocation of funds while bottom up helps in proper selection. An optimal mix should to be adopted before investing.
Money flow into mutual funds is steadily growing on a monthly basis which is a very good sign for the economy as well as for markets. Consistently, inflows are from systematic investment plans (SIPs) which have acted as a backbone for D-Street in times when foreign investors were selling.
Strong participation from retail investors by way of systematic investment plans (SIPs) led to the total assets under management (AUM) of mutual funds rise to Rs 22.24 lakh crore in October, as per an analysis by ICRA.
“For retail investors, systematic investment plan remains the best bet. Despite the market downside, one must continue with the SIPs of mutual funds managed by best professional managers as historical data indicates sustained investment during these times ultimately helps in significant returns as bull-run begins again,” Arindam Chanda, CEO, IIFL Securities told Moneycontrol.
“The bigger damage to portfolio happens when there are too many start and stops in between. Even if you look at mutual funds during 2008 financial crisis and 2-3 years post the meltdown you will find they have given stellar returns in spite of longer investment phase and moderate market returns,” he said.
Let’s also look at stocks where funds managers are heavily invested. In as many as 33 stocks, fund managers hold 10-30 percent stake. This includes names like Infosys, Rane Holdings, Exide Industries, Divis Laboratories, ITD Cementation and Equitas Holdings.