MC Inside Edge: IT high on mutual fund radar, time for a cautious stance on CPSEs, New Asset Class and the class divide

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Mutual funds loving the tech flavour

Mutual funds have been aggressive buyers of stocks for some time now, and while their buying has been quite broad-based, one sector has been in focus. Market players say that mutual funds are betting big on the IT segment with stocks like Mphasis, Infosys, and TCS, figuring high on their radar. They say that these three stocks were among the most bought shares in June with the quantum of buying pegged in the range of Rs 2,000 crore to Rs 6,000 crore each. Apart from IT, the evergreens sector of financial services also saw significant buying with stocks like HDFC Bank, L&T Finance and ICICI Lombard General Insurance witnessing a lot of buying activity from the fund houses.

CPSE rally losing steam

After a strong bull run, CPSE stocks are showing the first signs of selling. For traders, a significant observation has been that these stocks fell the most from their recent highs and have not recovered even 1% from the recent lows. Interestingly, the list of stocks that are witnessing a high amount of call writing activity – typically a sign of neutral or bearish strategy -- is heavily dominated by CPSEs. This, according to traders, is the first sign that bears may be slowly getting into position for a full-fledged assault later. The fundamentals might still look strong, but those looking for quick entry and exit better be cautious.

Size does matter

The “New Asset Class” consultation paper from the Securities and Exchange Board of India (Sebi) has been largely welcomed by the markets though there has now emerged a view within the industry that this could be more beneficial to the larger fund houses. While Sebi has proposed that any fund house with an average AUM of Rs 10,000 crore over the last three years or those with experienced CIOs and fund managers would be eligible to offer the new asset class, industry players are saying the cost to offer and manage these high-risk high-reward products could make it feasible only for the larger players. While the Street is divided on this one, it would be interesting to wait and see the kind of feedback the regulator gets on the proposed concept.