Sectors such as financials, aviation, IT, energy and auto were on the radar of fund houses during September.
The euphoria in equity markets is largely led by domestic money, which is making its way into Indian markets by way of mutual funds.
Fund managers, with decades of experience in equity markets, have been careful in which stocks they bet their money on. But, with equity markets on a high, they may have to wait for a correction or a dip to buy stocks at comparatively discounted valuations.
September turned out to be a month when Indian markets saw some profit booking. The S&P BSE Sensex slipped 1.4 percent. It was also the same month when the Nifty made a bottom of 9,689 before rallying back to 10,000 in the following month (October).
Top ten large-cap stocks in which fund managers poured in over Rs 11,000 crore belong to sectors like financials, aviation, IT, energy, and auto space.
Infosys was on top of fund managers’ radar, which reported its results last week. They pumped in Rs 1,542 crore in the stock during September.
The company reported a net profit of Rs. 3,726 crore for the July-September quarter, but slashed its growth guidance for the year, disappointing the Street.
In the banking and NBFC space, which accounts for almost 50 percent of fund managers buying in September, includes names such as HDFC Bank, ICICI Bank, SBI, Bajaj Finance, and HDFC, according to a report by Morningstar India released last week.
This move alone might have benefitted MFs as banking stocks, especially SBI, saw a dream run last week when the government announced Rs 2.1 lakh crore recapitalisation plan for ailing PSU banks. But, private banks lost some sheen in the same period.
“Banking and financials have the highest weightage in the base indices and fund managers have continued to remain overweight in financials especially private sector and housing finance companies expecting a strong recovery down the line,” Saurabh S Jain, MD, SSJ Finance & Securities told Moneycontrol.
“However, the announcement made by the finance ministry of recapitalization of public sector banks has caught many fund managers off-guard who had been severely underweight PSU Banks,” he said.
Jain further added that going forward, mutual fund portfolios will continue to see rebalancing with PSU Banks being bought into while HFCs and private sector banks being rebalanced downwards.
Apart from banking and NBFC stocks, other largecap names include ITC which saw investments of around Rs 1,433 crore, and Interglobe Aviation which saw an infusion of Rs 1,484 crore.
GAIL India and Hero MotoCorp from the two-wheeler space were also on mutual fund managers’ radar.
Top largecap holding of mutual fund managers according to Morningstar India report include companies like HDFC Bank, ICICI Bank, Infosys, L&T, HDFC, ITC, Maruti Suzuki, Kotak Mahindra Bank, and IndusInd Bank.
September saw the highest rise in equity flows for mutual fund schemes although the total asset under management (AUM) slipped slightly.
The Total Category wise AUM of the mutual fund industry decreased by 0.9 percent to Rs 20.40 lakh crores in September 2017. On a QoQ basis total AUM of Mutual Fund Increased by 2.2 percent and on a YoY basis, it increased by 29 percent thanks to strength in equity markets where the overall sentiments remain optimistic.
The government is not leaving any stone unturned to bring the economy back on track and put India Inc. back on earnings trajectory which has remained elusive for the past so many quarters.“We remain structurally positive on the Indian equity markets with a medium to long-term horizon. Post GST implementation there are definite signs of improvement in the economy as reflected in the recent data on various economic indicators including auto
sales, export growth, demand for petrol and diesel and air traffic growth,” Shibani Kurian, Sr. Vice President and Head of Equity Research, Kotak Mutual Fund told Moneycontrol.
“We advise our investors to stay invested in equity and continue to invest in a disciplined and systematic manner into mutual funds. Prudent asset allocation and long-term focus are very critical for all investors,” she said.
On a MoM basis AUM of 6 categories witnessed rise while 4 categories witnessed fall (FOF, Gold ETF, GILT & Income), IDBI Capital said in a report. Equity category saw the highest rise on MoM basis & Income category saw highest fall in AUM, it said.
Midcap focus:In the midcap space, mutual fund managers poured in close to Rs2,500 crores in ten stocks which include companies like Max Financial Services, Bharat Financial, Cyient, Dewan Housing Finance, Tata Chemicals, Vardhman Textiles, Just Dial, The South Indian
Bank, Tata Global Beverages, and EIL.
Top 10 stocks sold by MF managers include names like Rain Industries, IGL, MOSL, BEML, Radico Khaitan, Balkrishna Industries, Ramco Cements, Crompton Greaves, IFGL Refractories Ltd, and Manpasand Beverages according to Morningstar report.
If we look carefully, fund managers have trimmed their stake in most stocks which have already more than doubled investors’ wealth or have outperformed benchmark indices so far in the year 2017 such as MOSL, Rain Industries etc. among others.
With high liquidity and investors looking for ‘value’ outside the largecap space, small & midcap stocks have seen significant appreciation, suggest experts.
“While the Nifty trade at 26x trailing PE, the small and midcap index is trading at historic highs of over 50x trailing PE. Obviously, the valuations thereby leave significant room for disappointment on the earnings growth and ROE fronts in comparison to what valuations are implying,” said Jain of SSJ Finance & Securities.
“There is a need for a constant reality check in terms of earnings growth potential in stocks which have given astronomical returns in the short run,” he said.