MFs used March rally to realign holdings; so what’s the ‘in’ thing this poll season

NEW DELHI: Mutual funds dumped PSU banks, specialty chemicals stocks, carbon black producers, housing finance companies and select drug makers, but loaded up on consumer-focused businesses, including FMCG and hospitality, during the March quarter as the nation geared up for the general elections.

These domestic institutional investors also bought into power producers and battery makers.

The quarter witnessed a deterioration in mutual fund flows into equities. Desi money managers invested only Rs 2,174 crore in stocks in February against Rs 7,161 crore in January while in March they withdrew Rs 7,665 crore. That, even when investment flows into equity and ELSS schemes more than doubled to Rs 11,756 crore in March from Rs 5,122 crore in February.

Market veterans attributed the March outflows to portfolio rejig. While strong investment flows in March had more to do with year-end tax savings, an FPI flow-driven recovery in domestic stocks from their February lows offered domestic funds enough liquidity and a good chance to rejig their portfolios, they explained.

Industry watchers expect strong MF buying going forward.

What did your money manager sell

Mutual funds cut their holdings in Hathway Cable & Datacom in March quarter to almost nil. At the end of March, they held just 0.01 per cent in the company against 6.3 per cent at the end of December, 2018. This company will report March quarter earnings later on Thursday.

On a sequential basis, fund managers cut exposure to housing finance names such as GIC Housing Finance by 420 basis points to 1.2 per cent, LIC Housing by 220 basis points to 4.9 per cent and PNB Housing Finance by 100 basis points to 7.7 per cent.

Funds turn cautious on PSU lenders
Mutual funds cut their holdings by 250 basis points in Union Bank to 5.5 per cent; by 160 basis points to 2.2 per cent in OBC, by 160 basis points to 4.6 per cent in PNB, and by 100 basis points to 1.4 per cent in Syndicate Bank.

They also cut holdings in specialty chemicals firms Nocil, Clariant Chemicals, Bodal Chemicals and Oriental Carbon & Chemicals by up to 200 basis points. In Phillips Carbon Black, their holding went down by 70 basis points to 2.1 per cent.

In the agrichemicals space, mutual funds trimmed stakes in UPL and GSFC by up to 140 basis points. Aurobindo Pharma, Solara Active Pharma Science and Torrent Pharma were a few drugmakers where MFs trimmed holdings by up to 170 bps.

Mutual funds are not going to be perpetual sellers. They are primarily slaves of inflows and outflows, says Dhirendra Kumar, CEO at Value Research.

“Given the turbulence in the market in last one year, mutual funds would have been waiting for liquidity and adequate level of the market to do some portfolio re-alignments. March might have offered them such an opportunity,” Kumar told ETMarkets.com.

A sharp rally from the February lows helped BSE Sensex end March quarter 2,698 points, or 7.48 per cent, higher at 38,767. On Monday, it traded at 38,942.

Stocks on MF radar
Data showed domestic fund managers raised their holdings in Inox Leisure (by 40 basis points to 21.4 per cent), even as they trimmed holdings in PVR by 170 basis points to 12.3 per cent and in ACC by 130 basis points to 10.33 per cent. They cut stakes Ambuja Cements by 80 basis points to 4.8 per cent.

Sheela Foam saw the biggest jump in MF inflow. Their holding in this stock rose by 730 basis points to 17 per cent by March-end from 9.7 per cent at December-end, data compiled from corporate database Ace Equity showed.

Consumer-focused companies such as Emami (up 570 basis points) and Relaxo Footwear (up 390 basis points) also saw MF holdings go up.

MFs also hiked stakes in battery makers Exide Industries by 140 basis points to 18.1 per cent, and in Amara Raja Batteries by 100 bps to 8.5 per cent.

The institutional class lapped up 2.1 per cent stake in The Indian Hotels Company to 24.7 per cent, and in Taj GVK Hotels & Resorts by 110 basis points to 9 per cent. They raised stake in Tata Power by 190 basis points to 10.7 per cent and in Torrent Power by 160 basis points to 11.1 per cent.

They also showed interest in retailers such as V2 Retail and Trent, where their holdings went up by 120 bps and 90 basis points, respectively.

Kumar said mutual funds may soon reinvest the money that they withdrew in March, as well as put in fresh money in a different set of stocks.