Fund managers have been consistently increasing their stake in some of the quality stocks in the last four quarters. MFs have raised their stake in as many as 180 companies across largecap, midcap, and smallcaps.
The Indian stock market witnessed a vertical drop from the highs of 11,981 recorded on the Budget day to levels below 11,000 in just 19 sessions. This has pushed valuations of many quality stocks to attractive levels.
Both global and domestic factors have contributed to the current slowdown. On the global front, US Fed commentary, as well as fresh concerns around trade talks hit sentiment.
Meanwhile, at the domestic level, muted corporate results in the June quarter, proposals of a tax surcharge on the super-rich, consistent FPI selling, expensive valuations, and corporate governance issues among others, have weighed in on the markets.
Investors should look at accumulating quality stocks with a long term horizon as bleeding is likely to continue in the short term. One way to filter stocks is to look at companies which fund managers are betting on.
Fund managers have been consistently increasing their stake in some quality stocks in the last four quarters. MFs have raised their stake in as many as 180 companies across largecap, midcap, and smallcaps.
Out of 180 companies, we have identified 12 companies that have a market cap of over Rs 100,000 crore, and are considered top-quality companies listed on the bourses.
12 companies, leaving aside HDFC Life, in which fund managers raised their stake consistently from September quarter include names like HDFC Life Insurance, Kotak Mahindra Bank, Axis Bank, ICICI Bank, TCS, Asian Paints, HDFC, RIL, HDFC Bank, L&T, ITC, and HUL.
Most of these stocks have given positive returns so far in 2019. Nine out of 12 stocks rose 7-28 percent while L&T, ITC, and HUL fell 3-4 percent during the same period.
The next big question is what should investors do now? Experts feel that it make sense to have some quality stocks in their portfolio which would in times of crisis fall less compared to the index.
“When times are erratic and uncertain, it is essential to have a portion of your portfolio dedicated to safer quality stocks. Hence, mutual funds are following the right approach by investing in largecap marquee names such as TCS, HDFC Bank among others,” Umesh Mehta, Head of Research, SAMCO Securities told Moneycontrol.
“These companies have transparency in their corporate governance, sound fundamentals and strong operational efficiency which makes them a safer bet comparatively,” he added.
Most of the aforementioned companies have also delivered consistent earnings performance amid factors such as fall in demand, rise in commodity prices, liquidity issues, rupee fluctuations, as well as an uncertain global environment.
“Increase in MF holdings in the above-mentioned names is a result of good quarterly performance, prudent management, promoter track record, market leadership, in their respective industries, and sound long-term growth prospects,” Ajit Mishra Vice President, Research, Religare Broking Ltd told Moneycontrol.
“Further, the fact that a large number of small and midcaps are facing deteriorating fundamentals, industry challenges; etc., MFs have turned to safe havens (HDFC, TCS, L&T) as we believe most of these names have the potential to give healthy returns over the next 1-2 years,” he said.
Some of the small and midcaps stocks are also grabbing fund managers attention. Some of the stocks have consistently risen in MF holding in the last four quarters and could also be considered for long term investment. There are as many as 29 stocks, up 10-60 percent in 2019 on the BSE in which fund managers raised stake consistently since September include names like SpiceJet, KNR Construction, Varun Beverages, Brigade Enterprises, Kalpataru Power among others.
“Small and Midcap space have been lagging to bluechips for a long time. Investing in Small and Midcap stocks are also riskier than investment in blue chips. But, this is a large universe of diverse companies that it is prudent to take decisions individually on these companies,” Romesh Tiwari, Head of Research, CapitalAim told Moneycontrol.
“Surely, there are a lot more gems in this space that can give super returns compared to bluechips. I think if the investor buys in selected small and midcaps in a phased manner and wait for the long term, they can get much better average returns than bluechips. From the list, HDFC life, Asian Paints, Gujarat Gas, and Spice jet can be bought for medium to long term for handsome returns,” he said.
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