As market scales new peaks, MFs start churning portfolios

As the Indian equity market makes fresh peaks, domestic mutual funds, which have been witnessing continued strong money inflows, are churning their portfolios and buying stocks which offer margin of safety or value.

According to data provided by Morningstar India on mutual fund activity in June, the top 10 purchases by mutual funds during the month were SBI, ICICI Bank, Infosys, Petronet LNG, ONGC, HDFC, ITC, Vedanta, Aurobindo Pharma and Kotak Mahindra Bank. Most of the above stocks have either been underperformers (SBI, ICICI Bank) or have been beaten down due to sectoral headwinds (Infosys, Aurobindo) or provide better business prospects (Kotak, HDFC) over the last six months.

A similar strategy has been adopted while buying mid-cap stocks such as Federal Bank, Fortis Healthcare, PI Industries, Dr Lal PathLabs, Tejas Networks, Dilip Buildcon, AIA Engineering, Amara Raja Batteries, Apollo Tyres and Thyrocare Technologies.

Except Federal Bank, Tejas Networks, Dilip Buildcon and Apollo, other stocks have either declined up to 22 per cent or gained only up to 4 per cent.

The selling strategy of mutual funds has mainly been based on the robust gains made by the stocks (leaving limited upside) or those that do not have a good outlook.

Stocks falling in the first category are Reliance Industries, Maruti Suzuki, Hindustan Unilever, LIC Housing FInance, M&M Financial Services, and Britannia Industries. Stocks falling in the second category are Sun Pharmaceutical Industries, Bosch and Tata Motors.

Among the mid-caps, stocks falling in the first category (robust gains) are Reliance Capital, GMR Infrastructure, Suprajit Engineering, Jubilant FoodWorks, Astral Poly Technik and Voltas. Stocks that fall in the second category (grim future) are Max Financial Services, Mphasis, Mindtree and ITD Cementation India.

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