Many mutual funds want no part in IRCTC’s roller-coaster ride

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MUMBAI – October was a month of great highs and eye-watering depths for investors of Indian Railway Catering and Transportation Corporation. It was too much to handle for some domestic mutual funds.

Shares of IRCTC jumped 68 per cent in the first three weeks of October as investors exuberantly bought the company’s stock. They expected IRCTC to report strong earnings due to the reopening of the economy and the stock to see speculative bets following its inclusion in the futures and options segment.

It was all going seemingly well for the company until a technical correction was triggered on the stock, following a massive liquidation of long positions in the futures contract after it breached the market-wide position limit and briefly entered a ban period. Following that, IRCTC, a day before its proposed stock split, announced that the government had asked it to share 50 per cent of its revenues from convenience fees. This not only clouded the earnings outlook but also raised suspicion of unnecessary government meddling in the business of a state-owned company.

In the last week of October, the stock tanked as much as 35 per cent from its record high as investors, including some big name mutual funds, rushed to exit. Out of the 25 mutual funds that held shares of the online ticketing platform on September 30, nearly eight of them sold all of their holdings by the end of October, data collated by East India Securities showed. Among the high-profile funds that sold their stake were Kotak Mutual Fund, IDFC Mutual Fund and Tata Mutual Fund. Most of those MFs that remained invested pared their holdings in the company.

“IRCTC has been very richly valued and a much needed correction that is happening is probably good for the stock in any case,” Deepak Shenoy, founder of Capital Mind, told ETNow in a recent interview.

While the volatility in IRCTC’s stock may have been too much to handle for some mutual fund managers, analysts remain bullish on the internet platform company. Brokerage firm Prabhudas Lilladher said earnings of the company would rise 34 per cent annually over the next three years, but also warned that the most of the positives were priced into the stock price. The brokerage has retained its hold rating on the stock following the company’s September quarter earnings.

Gurmeet Chadha, co-founder at Complete Circle Consultants, told ETNow: “We have to see if they are able to cross sell the web traffic. It is the highest transacted website in Asia-Pacific. If that pans out then these valuations can be justified, but if execution does not happen, then these valuations could be a bit of a risk.”