The net asset value of momentum funds, or funds that chase the market trend, have fallen 3-4 percent over the past few trading sessions even as the Nifty has remained flat. With US CPI coming in hotter than expected, volatility could persist, spelling trouble for more such funds.
The net asset value of these funds have taken a hit as they consist of several fancied PSUs such as PFC, REC and IRFC. Public sector companies have been worst hit in the recent broader market meltdown. The PSU index has eroded investors' wealth by over Rs 6 lakh crore between February 8 and February 13.
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India has only two active momentum funds - one by Quant and one by Samco, as per data compiled by Value Research. Bandhan, Edelweiss, ICICI Prudential, Kotak and Motilal fund houses also offer momentum funds but these are all index funds linked to Nifty200 Momentum 30 Index or Nifty Midcap150 Momentum 50.
As of January 31, the top holdings in Nifty200 Momentum 30 Index were Tata Motors, REC, Bajaj Auto, PFC, Coal India, Hindustan Aeronautics., Trent and NTPC.
The Nifty Midcap150 Momentum 50's top holdings are REC, PFC, Aurobindo Pharma, Lupin, IRFC, BHEL, NMDC and HDFC AMC.
Nifty200 Momentum 30 and Nifty Midcap150 Momentum 50 indices track the performance of the top 30 companies within the Nifty 200 and top 50 companies within Nifty Midcap 150, respectively, selected based on their Normalised Momentum Score.
The Normalised Momentum Score for each stock is determined based on its six-month and 12-month price return.
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Samco Mutual Fund's chief investment officer Umeshkumar Mehta told Moneycontrol that they are navigating the volatility by not keeping entire equity exposure in the actively managed fund. Equity exposure is around 60 percent, he said.
Further, the AMC has temporarily suspended any subscriptions in the form of fresh purchases, additional purchases, switch-in, new STP-in (systematic transfer plan) from March 1.
"Momentum was prevalent in mid, small and microcaps and therefore we were overweight, but the strategy was quickly able to trim exposure at the first sign of alarm. Some largecaps are now showing fresh momentum and hence the money is going in building portfolio on that side of the market," Mehta added.
View on the fancied stocks
Railway, power, auto, realty and defence are the sectors that have seen the maximum positive momentum in the past year. While realty and auto stocks still have some steam left, the Street believes other fancied sectors have run ahead of their fundamentals.
Stocks like RVNL, PFC and REC are down 10-20 percent from their highs.
Also Read: Railway PSU stocks in free fall; here's why
"These themes will hibernate for some time and therefore stocks in small and microcap space having low public float (PSUs) can remain volatile and correct sharply and thus fall on momentum scores. The bigger and wider public float companies are expected to correct with lesser volatility and still remain in momentum," Mehta said.
That said, fund managers remain confident that the long-term story is intact for these sectors. "This sell-off could be interpreted as profit booking or consolidation. However, from a long-term fundamental investment perspective, this is perceived as merely a trading action and not expected to persist for long," said Ashwini Kumar Shami EVP and Portfolio Manager, Omniscience Capital.
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.
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