Mutual funds deploy Rs 186 billion in September; highest in three months

Representational image: Shutterstock

Mutual funds deployed funds generously in September. They spent Rs 186 billion, which was the highest flow in three months, according to a report by Nuvama Alternative and Quantitative Research.

Nuvama Alternative and Quantiative Research was formerly Edelweiss Alternative and Quantitative Research.

Interestingly, the funds seemed to have turned very selective in auto stocks. They bought heavily into Maruti Suzuki (Rs 12.4 billion) and Hero Moto (Rs 6.7 billion) and trimmed their positions on Tata Motors (reduced by Rs 7.10 billion), Ashok Leyland (Rs 4.5 billion), TVS Motors (Rs 4.5 billion), Schaeffler India (Rs 2.8 billion) and Bajaj Auto (Rs 2.4 billion).

Brokerages are largely expecting the sector’s revenues to recover in the September quarter on better retail demand, though 2W sales were a drag on the overall numbers. Volume growth is expected to be flattish quarter-on-quarter but it is picking up substantially in the December quarter. Profits too are expected to improve significantly from the third quarter on volume growth and fall in commodity prices.

Also read: It is a 'buy on dips' market, says Motilal Oswal's Manish Sonthalia

Optimism around Maruti Suzuki is driven by its product portfolio and operating leverage. Analysts at Axis Securities are expecting its volumes to see strong growth in the second half of this fiscal, going by its order book. “We expect a recovery of both market share and margins in FY23 and FY24, led by a favourable product life-cycle, operating leverage, and product mix as well as price action/cost-cutting,” said a report from the brokerage. They set a target price of Rs 10,270 in the report.

Edelweiss Securities set a higher target price of Rs 10,685 and upgraded the stock to buy in its recent report. Analysts pointed to the strong order book of around 400,000 units, commodity price fall, favourable currency movement and the company’s push into the utility vehicle segment.

Tata Motors has been correcting sharply for the past few days, after its JLR sales numbers disappointed the Street. Its sales for the September quarter came to 75,300 units, which was 5 percent more than the previous quarter’s but 16 percent lower than the Street’s expectations of 90,000 units for the quarter. The numbers were poor largely due to semiconductor shortage but the management has said that the issue has been resolved by making new supply arrangements.

Negative sentiment around Ashok Leyland seemed to be driven by the increased competition in the CV industry, which may make it difficult for the company to pass on price hikes. This was expected to weigh on the margins in the mid-term.

Other than the auto sector, private banking also got a mixed response from mutual funds. The funds added Kotak Mahindra Bank and reduced ICICI Bank significantly.

Healthy growth prospects and its strong priority-sector lending portfolio (PSL) seem to have made Kotak Mahindra Bank look more attractive to investors, and expensive valuation seems to have made ICICI Bank look less appealing. The latter’s P/B has been trending higher since the beginning of this year and is currently at 3.9x while peers such as HDFC Bank and Kotak Mahindra Bank have P/B of 3.15x and 3.72x respectively.

Overall, analysts bought Infosys (Rs 20.7 billion), Kotak Mahindra Bank (Rs 15.5 billion) and Maruti Suzuki (Rs 12.4 billion) the most and reduced their positions most in Bharti Airtel (Rs 12.8 billion), Tata Steel (Rs 10.8 billion) and ICICI Bank (Rs 10.5 billion).

Infosys seems to be a favourite because of an expected share buyback, which is usually done at a premium. The company’s board is set to decide on that on October 13. According to the global brokerage firm Jefferies, the company usually does the buyback when its net cash is around Rs 300-400 billion and the analysts estimate that the September quarter results will show the net cash at Rs 401 billion.

Also read: Auto stocks a favourite with mutual funds on demand surge

Bharti Airtel has been among the large-cap stocks that fund houses have been selling consistently for the past three months. About two months ago, in August, Singapore Telecommunications or Singtel announced that it would sell 3.3 percent in Airtel to Bharti Telecommunications over three months.

Among mid-caps, key additions were GR Infra (Rs 7.3 billion), CG Power (Rs 4.7 billion) and LIC Housing (Rs 4.4 billion) and key reductions were Motherson Sumi Wiring (Rs 3.9 billion), Voltas (Rs 2.2 billion) and Elgi Equipment (Rs 1.5 billion). Among small caps, key additions were Triveni Turbine (Rs 3.8 billion), Butterfly Gan Ap (Rs 1.6 billion) and Vijaya Diagnostic (Rs 1.2 billion) and key reductions were Can Fin Homes (Rs 1.8 billion), Sterlite Tech (Rs 1.4 billion) and Manappuram Finance (Rs 1.1 billion).