During the recent fall in the equity market, the fund house reduced exposure to mid-cap stocks in its Multicap Fund, but is now looking at selectively buying some of these stocks
The Nifty rallied 9 percent from its 2018 lows on Wednesday and the Sensex scaled a fresh record high, but the overall mood of the market was not positive.
Mid-cap and small-cap indices are currently trading 15-20 percent lower than their record highs for the year.
"Even Nifty50 and Nifty Next 50, there is a 8-10 percent difference. We also saw slight erosion in midcap returns in last one year in funds," Mahesh Patil, Co-Chief Investment Officer and Fund Manager, Aditya Birla Sun Life AMC told CNBC-TV18.
The carnage in mid-cap and small-cap stocks is a buying opportunity as earnings growth is fair and the outlook is strong, he said. "So the buying is not only restricted to mid-cap funds but across funds," Patil told the channel.
During the recent fall in the equity market, the fund house reduced exposure to mid-cap stocks in its Multicap Fund. But it is now looking at selectively buying some of these stocks due to attractive valuations.
"We are sticking to quality names where we are seeing earnings growth with strong fundamentals," Patil said.
The fund manager also said fund flows into the market started slowing down after the Union Budget, mostly due to imposition of long-term capital gains tax, global concerns and macroeconomic events like the rise in crude oil prices.
"Now the run rate on an average is Rs 10,000 per month in mutual funds, which 40-50 percent fall compared to previous year," Patil told the channel.
He added that of late, the market has had a tendency to punish stocks that face short-term challenges, but that does not change their long-term outlook. "So one should buy those stocks with 1-2 years perspective," he said.
HUL and consumer sector
HUL was one of the classic cases among the top five stocks that did well and drove frontline indices higher. The stock rallied before its quarterly results were announced, so it may be giving up some of those gains.
Patil feels earnings growth should be good in the consumer space due to increased rural demand. "But it is not going to be 'V' shape recovery in earnings as numbers might be looking very good on low base also," he said.
Overall, earnings growth could be around 18 percent for FY19, Patil said. "Earnings should be fairly good in auto, consumption, banking & financials, NBFCs, private banks, metals and IT," he said.
The fund manager points out that a lot of cleaning up has taken place in the banking sector, particularly by corporate lenders, so there could be better earnings growth and an improvement in return on equity."With there-year view, private corporate banks could be interesting space to look at," he said.