The Indian market might be trading at valuations, which most analysts might not call cheap, but mutual fund managers preferred to pick stake in quality stocks as benchmark indices scaled the fresh peak in July.
The equity assets under management (AUM) of the MF industry grew by 6.4 percent on a month-on-month (MoM) basis to Rs 6.3 trillion in July to a new high, also marking the quickest Rs 1 trillion jump, said a Motilal Oswal report.
While gross inflows remained steady (Rs 28,000 crore, up 6% MoM), redemptions fell by 16 percent on a MoM basis to Rs 15,300 crore — which means retail investors preferred to add more funds rather than book profits, the report added.
MFs were net buyers in two-thirds of the Nifty stocks last month. The highest net buying in July on a MoM basis was witnessed in HDFC, Hero MotoCorp, and Ambuja Cements.
Increasing allocation to stocks that offer value at these levels could be a good strategy for investors, according to S Krishna Kumar, CIO, Equity, Sundaram Mutual Fund. However, he points out there could be some sectoral churns in about six months.
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“Inflows into financial instruments have been steady and there has been no major trend change. Rather, there were inflows of lump sums during the corrective phase,” he said.
Out of Nifty names, there are 20 such stocks in which fund managers have shown their conviction as the holding is above 2 percent. This includes names like HDFC Bank in which 19 funds have more than 2 percent exposure, followed ICICI Bank in which 16 have more than 2 percent of exposure, and Infosys, in which 12 funds have more than 2 percent exposure.
Other stocks which are conviction buys from fund managers include companies like Hero MotoCorp, NTPC, Eicher Motors, Axis Bank, Tata Steel, Kotak Mahindra Bank, TCS, ITC, M&M, Cipla, Sun Pharma, Power Grid, and L&T etc. among others, said the Motilal Oswal report.
HDFC Bank, one of the preferred stocks among MFs in July, saw net buying by 17 funds. Value increased by Rs41.2b while the stock was up by 8 percent for the month.
Other financials witnessing an increase in value on a MoM basis were SBI (Rs 3,610 crore), HDFC (Rs 3,080 crore), ICICI Bank (Rs 2,060 crore), Yes Bank (Rs 1,450 crore), Kotak Mahindra Bank (Rs 1,160 crore) and IndusInd Bank (Rs 1,100 crore).
Total AUM of the MF industry rose by 5.3 percent on a MoM basis in July to touch a new high of Rs19.97 trillion. The rise during the month of July was primarily led by a rise in AUM of income funds (Rs672b), equity funds (Rs381b) and balanced funds (Rs117b).
In July, seven of the top-10 stocks that saw maximum change in value were from Financials. HDFC Bank, SBI, HDFC, Infosys and ICICI Bank saw maximum value change on a MoM basis.
On the other hand, ITC, Dr. Reddy’s Laboratories, Sun Pharma, CG Consumer Electrical and Idea Cellular saw a maximum decline in value.
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