How mutual funds churned their portfolios in Mar-21

Here is a quick look at how the mutual fund segment overall churned its large-cap, mid-cap and small cap portfolios in March 2021.

April 19, 2021 8:24 IST | India Infoline News Service
In a month when SIPs were at an all-time record and equity funds saw net inflows after 8 months of net redemptions, it would be logical to expect aggressive buying from mutual funds. However, that was not the case! While selling continued to predominate the large cap space, it was more even with mid-caps and small caps with mutual funds doing a lot of portfolio churning. Here is a quick look at how the mutual fund segment overall churned its large-cap, mid-cap and small cap portfolios in March 2021.

How mutual funds churned large-cap portfolios in Mar-21

One quick glance at the chart and you can say that the large cap action was biased on favour of selling, perhaps, indicating that valuations are making mutual funds cautious.

Data Source: Mutual Fund Filings

If you look at the top-5 buys in the large cap space, the theme broadly appears to be consumption or consumption related. For example, Tata Consumer, Godrej Consumer and Havells are clearly FMCG plays. SBI Cards is a proxy for the rapid growth in consumption as well as the big shift to digital money in India. IGL may be partially an institutional play but is also a proxy for retail gas demand. In short, the only theme that MFs appear to be betting in the large cap space is consumption.

The selling was a lot more aggressive in the large cap space. Many MFs had added heavily to their PSU holdings in the last few months and they used higher levels to exit stocks like NTPC, ONGC and GAIL. Vedanta came under selling pressure as even the revised and upgraded open offer did not get a very enthusiastic response. Profit booking was also seen in Hindalco after metal stocks had seen a sharp rally in the last one year. The selling momentum was much stronger than the  buying momentum in the large cap space.

How mutual funds churned mid-cap portfolios in Mar-21

Unlike in the case of large caps, the mutual funds have shown a good deal of enthusiasm on the buy side also.

Data Source: Mutual Fund Filings

In the case of mid-caps, the contribution has been diverse and also evenly spread between buying and the selling. This is in stark contrast to the large caps, where the action was focused on the sell side. Clearly, this indicates that the enthusiasm at these levels of the market is more for mid-cap stocks with fundamental stories than taking a macro view.

Wabco has been on the buy-list of most of the mutual funds due to its focus on specialized electronic braking systems. Tata Communication featured more for the sale of the government stake of erstwhile VSNL. GOI exited TCOM completed during Mar-21. There was also buying in Max Health as a proxy for the healthcare industry as well as a steel play via SAIL, which remains the most reasonably priced of the steel stocks.

On the sell side, there was heavy selling in TVS Motors and LIC Housing Finance. The LIC Housing selling was more on NPA concerns and the languid growth in housing demand. Tata Power has rallied more than 200% in the last 1 year and there has been some profit taking in Mar-21. MFs also sold out of Amara Raja Batteries and ICICI Securities, although the selling value was much smaller.

How mutual funds churned small-cap portfolios in Mar-21

The mutual fund action in the small cap space was also a lot more varied as compared to the large caps. There was buying interest in select stocks and the stories were highly specific to stocks rather than to any sectoral themes.

Data Source: Mutual Fund Filings

Interestingly, some of the small caps have seen a lot of action. It needs to be remembered that large caps, mid-caps and small caps in this context are defined in the same manner as SEBI defines capitalization classifications based on their ranking by market cap. Small caps are those stocks that rank below 250th in the market cap pecking order.

Across the board, Varroc Engineering saw a lot of buying interest. An auto ancillary company, Varroc is part of the Jain group and is known for its precision auto components. Sterling & Wilson Solar, part of the Shapoorji Pallonji group also saw some buying interest after the company got a rescue package and started to reduce its debt aggressively.

There were aggressive selling candidates too. Mutual funds sold heavily into JM Financial and IDFC among the financials while there were also net sellers in NLC (formerly Neyveli Lignite). Mahindra Lifespaces has been struggling with weak offtake numbers and that stock also saw aggressive selling in Mar-21.

In short, Mar-21 was largely a story of selling continuing in the large caps as MFs pared positions on valuation concerns. Of course, the buying was a lot more visible in mid-caps and small caps and that is where the action appears to be shifting for now.

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