After a long stretch of net equity fund outflows between Jul-20 and Feb-21, equity funds saw net inflows in March and April. However, that is just the macro story. What is of greater interest is the micro-story. What is the stock that mutual funds have been buying and selling in Apr-21?
What are the large caps that mutual funds are betting against?
Nifty stocks may not always be about alpha but that is where most of the weight is concentrated. Hence to understand the broad trends of the mutual fund flows, it is essential to look at the large-cap stocks and themes that mutual funds were betting against in the month of April 2021.
There was some trimming of positions in commodity stocks that have rallied sharply in the last few months. Mutual funds were major sellers in stocks like BPCL, Coal India, and Hindalco, all of which showed good traction in the last few months. Pharma was another sector that mutual funds took money out of after a frenetic COVID resurgence rally. Dr. Reddy’s Laboratories and Cipla were among the major large caps that mutual funds sold out.
Finally, there were some very specific stories that mutual funds sold out of in April 2021. Consumer stories are coming under strain due to weak demand and higher input costs. Mutual funds sold out of Asian Paints and also out of Maruti Suzuki in April 2021. They also sold Bharti Airtel on expectations of weak ARPUs in the Mar-21 quarter.
What are the large caps that mutual funds were betting in favour of?
One theme that stood out in the month of April was the return of the financials. Most financial stocks had been under a cloud with the resurgence of COVID but early indications from Mar-21 quarterly results were that financials continue to do fairly well.
In the financial space, mutual funds were seen going for specific names like Axis Bank, Bajaj Finance, HDFC, ICICI Bank, and SBI. Mutual funds also preferred Bajaj Finserv as a quasi-insurance play. Clearly, the buying by mutual funds was dominated by financials.
In terms of specific stories, mutual funds increased their exposure to Adani Ports after its latest acquisition of the Gangavaram, Dighi, and Krishnapatnam ports and emerging as the largest port operator in terms of volumes. There was also some preference for Sun Pharma as a relatively defensive bet in the pharma space. As a sidelight, it must also be mentioned that Indian mutual funds bought Rs85cr worth of shares in the IPO of Lodha Group, which is listed under the name of Macrotech Developers.
Mid-cap and small-cap buying and selling by mutual funds
There were a number of mid-cap and small-cap stocks that mutual funds bought during the month of April 2021. Here are some significant buys and the stories behind these purchases. There was heavy buying in Hindustan Copper to the tune of Rs218cr in Apr-21. Copper prices are going through the roof in the global market and Hindustan Copper is the only integrated pure copper player in India. Also, being a PSU, the price had been languishing.
Hathway Cable was another stock in which mutual funds infused nearly Rs192cr in Apr-21. This stake was picked up by mutual funds in the OFS in which RIL pared its stake in Hathway Cables. Apart from that, mutual funds were also key buyers in stocks like Lux Industries, Bharat Rasayan, and Dilip Buildcon in the mid-cap space.
Let us now turn to the mid-cap names where mutual funds pared their stakes in Apr-21. Some of the stocks where mutual funds reduced their stake in April include names like Tata Coffee, PTC India, TVS Srichakra, and India Cements. These are names that have seen a sharp rally in the last few months and mutual funds have been booking profits.
Interesting entries and exits by specific mutual funds
There were some interesting buys from the list of funds outside the top-3 in terms of AUM. Tata Mutual Fund bought Eveready Industries and Power Grid INVIT in Apr-21 while Nippon India MF bought Infibeam Avenues and Macrotech IPO. Among other key buys by fund houses, Motilal Oswal MF bought Infibeam, Aditya Birla Mutual Fund bought Satin Credit and UTI Mutual fund bought Tata Motors DVR in Apr-21.
Now for some interesting fund-specific sells. Sundaram MF was actively selling completely out of Apollo MicroSystems, Take Solutions, and Prabhat Dairy. This could be the pruning post its merger with IDBI AMC. Additionally, Edelweiss MF sold out of Harita Seating while PGIM sold out of Sharda Motors.
In a nutshell, it was a busy month for mutual funds in terms of portfolio churn. A lot will predicate on how the mutual fund flows pan out in the coming months.