Mutual funds go on a shopping spree, pumping $35 billion into top companies

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A significant 77.5% of this investment was concentrated in just 10 companies.

HDFC Bank took the lead with mutual funds increasing their stake from 16.28% in FY22 to 23.17% in FY24, marking an impressive investment of 1.2 trillion and a 6.9% increase. 

Reliance Industries also witnessed a robust increase, with mutual fund holdings rising from 5.2% to 7.5% during the period, translating to an additional investment of 35,525 crore.

The valuation of these mutual fund investments is based on a volume-weighted average price.

Sectors such as financials, automobiles, energy, information technology, and consumer goods have been particularly attractive to these funds.

Abhilash Pagaria, head of Nuvama Alternative and Quantitative Research, expressed optimism about the ongoing influx of money into mutual funds, which he believes will continue to fuel equity market investments. 

“Currently, close to $2.3 billion of SIP (Systematic Investment Plan) money fuels the market…India still remains an underpenetrated market in terms of equity investment,” Pagaria said.

Several other also companies saw notable increases in mutual fund holdings, including Maruti Suzuki with a 4.45% rise to 12.67% in FY24 valued at 12,978 crore, and Kotak Mahindra Bank, which saw a 3.56% increase to 12.82% valued at 12,938 crore. 

Other significant movements were seen in Tata Consultancy Services, Power Grid Corp, Hindustan Unilever, Interglobe Aviation, Bajaj Finance, and Coforge, with substantial investments reflecting confidence in these sectors.

Kranthi Bathini, director of Equity Strategy at Wealth Mills Securities Pvt Ltd, told Mint that mutual funds continue to show strong interest in financials, capital goods, and infrastructure sectors due to their market cap, liquidity, and the promising growth potential fuelled by domestic consumption. 

He anticipates this trend to draw more fund inflows in the future.

The Indian stock market has had a robust performance with the Nifty 50 and Sensex indices surging over 47% from 1 April 2021 to 31 March 2024. 

The Nifty Auto index also saw a substantial rise of over 113%, with the Nifty Bank and IT indices making significant gains of 39% and 34%, respectively. The BSE Consumer Durable Index also posted a healthy increase of over 59%.

Pagaria expects the proportion of household savings invested in the stock market, currently at 4% to 4.5%, to rise to 8% in the next four to five years. This increase in investor interest is likely to stimulate more buying activity in sectors like capital goods, consumer durables, and private banks, integral to India’s growth narrative.

Gopal Kavalireddi, vice president of research at discount brokerage firm Fyers, noted a strategic shift in fund management, focusing on immediate domestic factors like corporate earnings growth and political stability while maintaining substantial cash positions to seize undervalued opportunities. 

He also highlighted a realignment in investment strategies towards sectors previously underperforming, suggesting potential shifts in sectorial investments due to emerging market dynamics.

Currently, industries such as banking, financial services and insurance (BFSI), information technology (IT), chemicals, and fast-moving consumer goods (FMCG) are garnering increased interest as investors aim to realign their portfolios. 

Conversely, sectors like capital goods, automobiles, consumer durables, and other discretionary consumption-related sectors are beginning to show signs of overvaluation, he added.

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Published: 14 May 2024, 04:23 PM IST