May saw a notable change in sector and stock allocation of funds.
Mutual funds grabbed the opportunity to lap up shares as the Nifty dropped almost 3 percent last month. They were net buyers in 52 percent of Nifty constituents.
The stimulus package of around Rs 21 lakh crore announced by Prime Minister Narendra Modi and Finance Minister Nirmala Sitharaman failed to cheer the market as it focussed more on the supply side than the demand side.
Also, the rising number of novel coronavirus, or COVID-19, cases kept investors in a wait and watch mode.
The weightage of consumer, telecom, automobiles, healthcare, cement, technology, metals and utilities increased last month as against April, while that of private banks, non-banking financial companies (NBFCs), state-run banks, oil and gas and retail moderated, according to a report titled 'Fund Folio' by Motilal Oswal Financial Services.
The weightage of defensives increased 220 basis points month-on-month to hit a record high of 35.5 percent. (100=1 percentage point)
During extreme volatility, fund managers turn to defensives as these stocks tend to be more stable during various phases of a business cycle. Also, there is a constant demand for defensives such as pharma and fast moving consumer goods (FMCG).
Weightage of consumer plays increased 100 bps MoM to 9.8 percent after moderating in the previous month. The sector has climbed back to the second position in terms of allocation by mutual funds.
Another sector that mutual fund houses have been upbeat on since the last six months is telecom. Fund managers are finding telecom a ‘good investment space’ given the change in dynamics.
“It is broadly a three-player industry and dynamics are in place. Indians are consuming products be it voice or data, 10-12 GB per month per user is not small by any standards, plus the lockdown has increased the data usage,” said a chief investment officer from a bank-sponsored fund house.
Weightage of telecom increased for the seventh successive month, up 80 bps MoM to hit a fresh high of 3.9 percent.
Mutual funds shunned private banks, with their weightage touching a 20-month low of 16.7 percent
In terms of value increase, most buying by fund houses was seen in Hindustan Unilever (Rs 65.8 billion), Bharti Airtel (Rs 61.4 billion), ITC (Rs 18.9 billion), Aurobindo Pharma (Rs 9 billion) and Cipla (Rs 7.9 billion).
Apart from these, buying was also witnessed in Zee Entertainment, JSW Steel, Wipro, and Bharti Infratel in May.
In terms of value decline MoM, eight of the top-10 stocks were from the financial sector. ICICI Bank (Rs 52.7 billion), SBI (Rs 41.5billion), Axis Bank (Rs 36.6 billion), HDFC Bank (Rs 36.1 billion), HDFC (Rs 35 billion), Bajaj Finance (Rs 19.4 billion), Kotak Mahindra Bank (Rs 17.3 billion) and PFC (Rs 7 billion) declined the most.
In May mutual funds saw inflows worth Rs 5,000 crore as against Rs 6,213 crore received in April. A large part of the inflows were deployed in largecap funds.
Fund inflows into equity mutual funds declined further in May to Rs 5,257 crore from Rs 6,213 crore in April. March inflows, when benchmark indices crashed 23 percent each, stood at Rs 11,723 crore.
The equity segment has seen most of the buying towards funds that have a largecap bias in them. Largecap funds witnessed inflows of Rs 1,555 crore and was higher compared to midcap and smallcap funds that saw muted inflows at Rs 279 crore and Rs 293 crore, respectively.
The contribution of systematic investment plans (SIPs) also declined for the second successive month to Rs 8,120 crore (down 3 percent MoM) after hitting a high of Rs 8,640 crore in March. Notably, the contribution of SIPs is now at the same level that it was 11 months back.
In May, total AUM for the mutual fund industry rose to 24.5 lakh crore from Rs 23.9 lakh the previous month.