Asset management companies (AMCs)
Mutual funds, also known as asset management companies (AMCs), are key investors in equity markets. They put investor money in a variety of sectors, including equities and debt. Over the past few years, whenever the market has corrected well, they have been supportive.
But, over the past two months, they have been net sellers. Perhaps preferring to book profits that have rallied 50 percent in markets since March lows. MFs have sold nearly Rs 11,000 crore worth of shares in the last two months. Including Rs 7,232 crore in July.
Foreign institutional investors (FIIs) net buyers bought shares worth nearly Rs 32,000 crore in two months. Including Rs 8,590.13 crore in July. If we go back a bit, FIIs were net buyers during the April-July period.
The market grew by more than 7 percent in June as well as July. Experts say it sets the price for all the positives given by the major liquidity boost. Along with data points published during the unlocking period and the June quarter earnings report card.
Following the rally, mutual funds reiterated their exposure to some stocks. While four blue-chips, Reliance Industries, Infosys, HDFC Bank, and ICICI Bank, remained stable.
Infosys, the second-largest IT services company in the country, and HDFC Bank, a private sector lender. Held a total of top 10 mutual fund houses in July. Reliance Industries, owned by billionaire Mukesh-Ambani. And ICICI Bank, the second-largest private sector lender in India, owns nine of the 10 AMCs.
In total, there are eight AMCs – SBI AMC, HDFC AMC, ICICI Prudential AMC, Nippon AMC, UTI AMC, Aditya Birla Sunlife AMC, Kotak AMC, and Mirae AMC
These AMCs have over Rs 2 lakh crore worth of shares in these four companies. Including HDFC Bank (Rs 56,192 crore) and Reliance Industries (Rs 51,820 crore).
Reliance Industries led the charge (139 percent), Infosys (82 percent), HDFC Bank (34 percent) and ICICI Bank (27 percent).
Also in July, Reliance (21 percent), Infosys (31 percent), ICICI Bank (1 percent) and HDFC Bank (3 percent) fell.
Looking at the rally, eight of the nine AMCs reduced their exposure to Reliance Industries in July. Global investors’ investments of over Rs 1.5 lakh crore on geo-platforms, growing telecom business, and a debt-free environment pushed RIL’s stock price to a record high in July. RIL became the first company to touch the market cap of Rs 14 lakh crore (including partially paid shares).
Infosys fired on almost all cylinders in June quarter earnings, which gave investors confidence and, as a result, exposed the stock in six of the 10 fund houses in July. In the case of ICICI Bank and HDFC Bank, which reported good earnings despite the temporary ban, the five AMCs each increased their exposure.
Gaurav Garg, Head of Research at CapitalVia Global Research
“Majorly RIL driving The Market. Also, technology stocks were favorites among AMCs. Growth anticipation and better Q1FY21 results led to the rally. In my opinion, these stocks may continue to generate good returns in the long term. Amid uncertainty over earnings and sustained profitability, institutions have preferred heavyweights over broader indices,” Gaurav Garg, Head of Research at CapitalVia Global Research said.
The broader market has not worked well for the past three years. Since January 2018, while the Nifty has been flat, the broader market represented by midcap and smallcap indices has severely affected the Nifty.
Vineeta Sharma, Head of Research at Narnolia Financial Advisors
Vineeta Sharma, Head of Research at Narnolia Financial Advisors agrees with Garg. “The market internals are highly skewed in the favour of selective large-cap stocks and the same is being reflected when we see the mutual funds holdings,” she said.
Till a broader economic recovery and earnings growth is seen in Indian companies, this situation will continue, she said.
Both experts prefer to keep these stocks long-term.
Garg said investors should have 60 percent exposure to blue-chips and rest on broad indicators. “In my opinion, they should continue them from medium to long term.”
These consistently good quality companies are a must-have for any investor, in the long run, Sharma said, adding that while the broader economy has improved, it is also good to include mid and small-cap stocks that produce growth.
In addition to these four stocks, seven of the 10 AMCs owned Bharti Airtel in July. Six are exposed to Axis Bank. Of the five fund houses, Kotak Mahindra Bank, TCS, and ITC were also exposed.
HUL, SBI, and NTPC were held by four out of 10 AMCs, while housing finance major HDFC is held by three fund houses.