Relative valuations are attractive and around average, but midcap valuations are still looking stretched despite the recent drawdown, Morgan Stanley said in a recent note.
Inflows from mutual funds into equity markets have balanced the relentless selling by foreign institutional investors (FIIs). The same receded slightly in May as retail investors preferred to sell at higher levels. After rising 6.7 percent in May, the assets (equity) under management (AUM) of MFs declined marginally by 0.3 percent month-on-month (MoM) at Rs 7.98 lakh crore.
The fall in equity AUM was driven by flattish market performance. Sales of equity schemes sales rose 4.6 percent MoM to Rs 28,200 crore and redemptions increased 10.9 percent MoM to Rs 16,100 crore, Motilal Oswal said in a report.
Total AUM of the MF industry fell 2.8 percent MoM to Rs 22.6 lakh crore in May, led by a decrease in the AUM of liquid funds (down Rs 58,400 crore), income funds (down Rs 5,200 crore), balanced funds (down Rs 3,300 crore) and equity funds (down Rs 2,100 crore).
The market rose marginally in May but notable changes were seen in the sector and stock allocation of funds. On a MoM basis, the weightage of financials, technology, consumer and oil & gas stocks increased, while those of capital goods, healthcare, automobiles, metals, infrastructure, cement, utilities, telecom, real estate and chemicals moderated, it said.
May was a roller coaster ride for India markets. The Sensex recovered over 1,000 points from its intraday low of 34,302 recorded on May 23. Fund managed used this volatility to dip into quality stocks.
10 largecap stocks which fund managers purchased include: Housing Development Finance Corporation (HDFC), ITC, HCL Technologies, Maruti Suzuki, Sun Pharmaceutical Industries, State Bank of India, NTPC, Tata Motors and HDFC Bank, data compiled by Morningstar India shows.
Small and midcap stocks which MFs bought in May include: Indostar Capital Finance, Mphasis, Orient Electric, Voltas, Balkrishna Industries, Bharat Financial Inclusion, Tata Chemicals, City Union Bank, Indian Hotels and Aditya Birla Fashion and Retail.
Ten largecap stocks which fund managers sold in May include: Power Grid Corporation of India, InterGlobe Aviation, Indian Oil Corporation, Kotak Mahindra Bank, Pidilite Industries, Container Corporation of India, Gail India, Dabur India, Punjab National Bank and Adani Ports.
Fund managers dumped these 10 small & midcap stocks: Cyient, Repco Home Finance, Crisil, Reliance Infrastructure, PC Jeweller, SRF, Atul, Tata Global Beverages, Tata Communications and KSB Pumps.
Going forward, the market is likely to move in a range as there are plenty of challenges for India market namely – rising crude oil prices and fiscal deficit, weakening currency, election uncertainty, as well as trade wars. Amid all the uncertainty, mid and smallcaps that are still trading at expensive valuations even after the recent correction are unlikely to outperform.
Relative valuations are attractive and around average, but midcap valuations are still looking stretched despite the recent drawdown, Morgan Stanley said in a recent note. The global investment bank is of the view think that the market is not pricing in a multi-year growth cycle, which implies a meaningful upside potential in stocks over the next 3-5 years. “For long term investors, valuations are still in the comfort zone.”In an interview to CNBC-TV18, S Naren, CIO, ICICI Prudential AMC, said he prefers largecaps over midcaps and smallcaps over the next few years. “Midcaps are relatively overvalued than largecaps. In the past 2-3 years, the fall in commodity as well as crude prices really worked for the broader market. But the trend is slowly shifting towards largecaps.”Not sure which mutual funds to buy? Download moneycontrol transact app to get personalised investment recommendations.