Large cap, mid cap and small caps on the MF radar in Oct-21

The month of October 2021 saw strong retail interest in mutual funds, as represented by SIP flows. In fact, SIP flows touched an all-time record of Rs10,509cr in Oct-21. That still does not tell us the specific stocks that mutual funds preferred in the month of October.

Nov 22, 2021 07:11 IST India Infoline News Service

The month of October 2021 saw strong retail interest in mutual funds, as represented by SIP flows. In fact, SIP flows touched an all-time record of Rs10,509cr in Oct-21. That still does not tell us the specific stocks that mutual funds preferred in the month of October.

A broad macro perspective of what mutual funds preferred

Broadly if you look at the mutual fund buying preferences in the month of Oct-21, 3 trends are visible. Firstly, there was a clear preference for financials, which includes banks, insurance and NBFCs. Across large caps, mid-caps and small caps, the financials were the preferred theme. One can argue that they are the most liquid but there was another reason. Most banks had come under pressure in October after the Fed hinted at front-ending rate hikes. That made banks look cheaper.

The second trend was the preference for IT in the large cap space. FPIs had been big sellers in IT in the last 2 months and many mutual funds have been using the dips to accumulate front-line IT stocks. Finally, there was a surge in demand for IPOs and while there were stock specific preferences, most mutual funds got allotments as part of anchor placement.

Which large cap stocks did MFs prefer in Oct-21

The table below captures the 6 most bought stocks in the large cap space, with an indicative combined value of mutual fund purchase in these stocks.

Top Large Cap Stocks Bought Total MF buying in Oct-21
HCL Technologies Rs3,137cr
Tata Consultancy Rs1,930cr
ICICI Lombard General Rs1,887cr
Infosys Ltd Rs1,620cr
Axis Bank Ltd Rs1,510cr
ICICI Bank Rs1,495cr

The above 6 are just an indicative list for reference. Out of the 10 most bought stocks in October, 4 were from the financials space and 4 were from the TMT (Telecom, Media, Technology) space. There was one ecommerce (they call it catalogue retail) company in the list as mutual funds collectively invested Rs737cr in FSN E-Commerce Ventures, the holding company that owns and operates digital beauty platform, Nykaa.

Which mid-cap stocks did MFs prefer in Oct-21

The table captures the 6 most bought mid-cap stocks with indicative value of mutual fund purchase in these stocks.

Top Mid-Cap Stocks Bought Total MF buying in Oct-21
Zee Entertainment Rs619cr
Aditya Birla Sun Life AMC Rs417cr
Max Financial Services Rs383cr
Bank of Baroda Rs305cr
Emami Rs237cr
Manappuram Finance Rs224cr

The above 6 give you an idea of the specific stocks that mutual funds preferred in Oct-21. Unlike large caps, mid-caps are heterogeneous. However, despite that some sectoral trends were visible. Out of the 10 most bought mid-cap stocks by mutual funds, 6 were financials. The others were from diverse sectors like FMCG, autos, capital goods and media.

Even in the case of mid-caps, the second most preferred stock for mutual funds was Aditya Birla AMC. Funds looked at Aditya Birla Sun Life IPO as an opportunity to buy a low-priced AMC with strong penetration. Zee was the most preferred stock due to its proposed deal with Sony and the sharp rally in the stock. Escorts was among the most preferred mid-cap stocks, ahead of the Kubota deal to enhance its stake in Escorts. MFs were also looking at Manappuram as a gold proxy, a logical bet when there is global macroeconomic uncertainty.

Which small-cap stocks did MFs buy in Oct-21

While looking at the 6 most bought stocks in the small-cap space, one must remember that small caps are normally bottom-up plays rather, not macro plays. Here are the 6 most preferred small cap stocks for mutual funds in Oct-21

Top Small-Cap Stocks Bought Total MF buying in Oct-21
Delta Corp Rs224cr
Fino Payments Bank Rs210cr
Gokaldas Exports Rs206cr
City Union Bank Rs194cr
Prince Pipes and Fittings Rs156cr
India Cements Rs130cr

While small caps are essentially bottom-up stories, we will still look at the sectoral mix of most preferred small caps. Out of the 10 most bought mid-cap stocks, 4 were still from the financials space. The others were from diverse sectors like textiles, consumer durable, casinos and cement.

The preference for Delta Corp is understandable as it offers the best proxy for normalization of the hospitality and entertainment business. The one IPO in the list was Fino Payments Bank, which did not get a very positive listing post its IPO. One interesting names in the list is Phillips Carbon Black, which is seen as a proxy for the revival in tyre and auto demand.

Gokaldas may look like a surprise inclusion in that list but textiles sector is gaining from problems in China and Vietnam and is likely to be a big beneficiary of the government sponsored PLI scheme. Prince Pipes is another surprising inclusion but this company has leadership in polymer pipes, which has a strong correlation with construction activity.

Overall, it has been a stock specific month with mutual funds taking calculated bets on stocks on the buy side.

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