Mutual funds’ faith in equity pays off

Bhavana Acharya | Updated on: Dec 06, 2021




Invest ₹32,900 cr in June quarter on heavy inflows into equity funds; pick more winners than foreign portfolio investors

Since hitting highs in early March, the market bellwethers have been largely static. While foreign portfolio investors have chosen to reduce their equity holding in this period, mutual funds have done the reverse. And, it has paid off for the funds, thanks to their stock picking skills which has been superior to that of foreign portfolio investors in the June quarter.

The shareholding patterns of the CNX 500 companies for the June quarter reveals that mutual fund holdings in the free-float market capitalisation of the CNX 500 index as of end-June 2015 increased to 8.6 per cent from 8.1 per cent towards the end of March.

This is also significantly higher than the 7 per cent holding in June last year.

This is at odds with the moves of fFPIs, which reduced their overall market holdings from 41.7 per cent at end-March to 41.3 per cent by end-June.

These trends are for the 441 companies of CNX 500 for which June shareholding patterns are available.

The rise in MF holdings is explained by the heavy inflows into equity funds. Retail folio numbers in equity-oriented funds for the June quarter were higher by 2.6 per cent compared with the March quarter. Net inflows into equity funds totalled around ₹32,900 crore for the April-June 2015 period.

This is far higher than the ₹9,013 crore received in the June quarter of 2014.

Who is better?

Overall, MFs increased stake by a margin of one percentage point or more between the March and June quarters in 48 stocks and lowered stake in just 20. FPIs increased stakes in 51, and cut down on holdings in 79.

But MFs have a better record of picking outperformers. Of the stocks in which MFs raised holdings, over 70 per cent returned more than the 1 per cent gain the broad market gauge CNX 500 managed.

Just around 60 per cent of the FPI stocks outdid the market, though they have a better track record of getting out of losers.

Contrary moves

What did these two groups buy? Ashoka Buildcon was one stock that saw a sharp jump of 5 percentage points each in holdings by both MFs and FPIs between the March and June quarters. Sun Pharma, Glenmark Pharma, and JK Lakshmi Cement too saw hikes of a percentage point or more by both groups of investors.

But in most other choices, MFs and FPIs followed very different strategies. For example, FPIs began cutting back on the auto sector, lowering holdings in stocks such as Tata Motors, Hero MotoCorp and TVS Motor by a percentage point or more. MFs, instead, increased stakes in all three. While FPIs reduced holdings in mining stocks Hindalco and Hindustan Zinc, MFs did the exact opposite. Other sectors where MFs added stake but FPIs did not include banks, capital goods, paints, textiles, and metals.

FPIs, on the other hand, rode the logistics wave on Container Corporation, hiking stake by a good 3.6 percentage points in the June 2015 quarter. MFs began reducing exposure to the sector. Other similar examples include plastics and education.

Even in sectors where the two groups took similar calls – such as infrastructure, pharmaceuticals and consumer durables – and raised stakes, they went about it differently. KNR Constructions, CPCL, Blue Star and IFB Industries saw a rise in MF stake by at least one percentage point between the March and June quarters. FPIs preferred Adani Ports, TTK Prestige, La Opala and CESC instead.

Published on July 26, 2015
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