Large cap, mid-cap and small caps that MFs traded in January 2023

13 Feb 2023 , 07:29 PM

The revival in China also raised hopes of a positive rub-off on other Asian economies. Not surprisingly, FPI sold equities to the tune of $3.52 billion in the month of January 2023. After net selling $16 billion of equities in the year 2022, FPIs began 2023 on a dull note. There were hopes raised after the FPIs had turned net buyers in the second half of 2022, but that momentum did not sustain in 2023. 

However, the damage to the Indian market indices was limited due to the strong support from domestic investors. In fact, if you look at the December 2022 quarter, domestic investors including mutual funds, insurance companies and retail investors raised their stake in Indian companies on a yoy basis. This is at a time when FPI share of Indian companies has been gradually falling. For the month of January 2023, Indian mutual funds got SIP inflows of Rs13,856 crore and inflows of Rs4,422 crore via NFOs. That is a lot of money and that raises a very pertinent question. Where was all that money being invested?

The best way to answer that question from an equity perspective is to look at the portfolio changes of the mutual funds as a whole. We focus on the stocks that mutual funds and the stocks that they sold and in what quantity. Today, mutual funds manage close to Rs40 trillion as AUM under active and passive equity and debt combined. That is nearly $500 billion of money and that is a lot of money. LIC manages a similar amount, so between the insurers and the mutual funds, they manage well over $1 trillion. That is substantial on a market cap of $3.5 trillion for the BSE. Here is the overall picture of what mutual funds did in January 2023. To avoid comparing apples and oranges, we have separately covered large cap, mid-cap and small cap stock preferences of mutual funds for January 2023.

Large cap stock moves of mutual funds in January 2023

How do we define large caps? For simplicity, we stick to the AMFI definition based on market cap rankings. Based on the AMFI prescribed methodology, the combined universe of listed stocks on NSE and BSE are ranked descending based on market cap as the first step. From this list, the top-100 stocks by market capitalization are classified as large cap stocks. This list is reviewed by AMFI on a half yearly basis to ensure definitions are up to date. Here are the major large cap stocks that mutual funds bought and sold in January 2023.

Let us start with the mutual fund large cap buys first! Overall, the mutual funds added 630 lakh shares of Samvardhana Motherson International, 347 lakh shares of Zomato, 296 lakh shares of FSN E-Commerce Ltd (Nykaa), 253 lakh shares of Tata Motors Ltd, 114 lakh shares of Kotak Mahindra Bank, 71 lakh shares of SBI Cards and 60 lakh shares of Adani Ports SEZ. Apart from the above, mutual funds added smaller quantities of Apollo Hospitals, Grasim Industries and Hindustan Aeronautics Ltd (HAL) during January2023. There appears to be an attempt by mutual funds to do some value buying amidst the correction in select stocks.

We now turn to major large cap selling by mutual funds in January 2023. The selling was prominent in select stocks that rallied sharply in the recent past or where the quarterly guidance was not too exciting. A total of 265 lakh shares of HCL Technologies were sold, apart from 123 lakh shares of Tata Power and 89 lakh shares of Ambuja Cements Ltd. Other major stocks sold in January 2023 included 32 lakh shares of Indus Towers and 15 lakh shares of Adani Enterprises Ltd. Mutual also funds sold smaller quantities of Adani Green Energy, Adani Transmission, Hindustan Zinc and Tata Elxsi during January 2023.

Mid-cap stock moves of mutual funds in January 2023

Let us now turn to the AMFI methodology used to classify a stock as mid-cap? Under the AMFI definition, once the top 100 stocks by market cap are classified as large cap stocks, the 101st to 250th ranked stocks by market cap would qualify as mid-caps. Here are the mid-cap stocks that mutual funds bought and sold in January 2023.

Let us first focus on the mid-cap buying in January 2023. Overall, mutual funds added 246 lakh shares of Steel Authority of India Ltd (SAIL), 100 lakh shares of Bank of India, 100 lakh shares of NMDC Ltd, 57 lakh shares of L&T Finance Holdings Ltd, 50 lakh shares of Voltas Ltd, 25 lakh shares of Syngene Ltd and 20 lakh shares of One97 Communications Ltd (Paytm). In addition, mutual funds added smaller quantities of Dixon Technologies, Piramal Enterprises and Blue Dart Express Mid-cap buying was focused on alpha seeking in beaten down value stocks.

We now turn to major mid-cap selling. In January 2023, Mutual Funds sold 936 lakh shares of Vodafone Idea Ltd, 351 lakh shares of IDFC First Bank, 216 lakh shares of REC Ltd, 63 lakh shares of Max Financial Services, 47 lakh shares of Yes Bank Ltd, 24 lakh shares of Laurus Labs, 15 lakh shares of Bata India and 10 lakh shares of Sun TV Networks Ltd. In addition, mutual funds also sold smaller quantities of companies like L&T Technology Services (LTTS) and Oracle Financial Services Software (OFSS) Ltd.

Small cap stock moves of mutual funds in January 2023

Finally we turn to the small cap stocks. On market cap ranking, the stocks ranked 251st and lower are classified as small caps by AMFI. We apply the same definition for our rankings too. Here is a quick snapshot of some of the key small cap stocks where mutual funds were active in January 2023. Typically, small caps and mid-caps tend to outperform large caps when the undertone of the market is bullish, but witness pressure in volatile markets.

In January 2023, mutual funds added 429 lakh fresh shares of South Indian Bank, 80 lakh shares of Kalpataru Power Transmission, 59 lakh shares of EPL Ltd, 54 lakh shares of Hindustan Copper Ltd, 23 lakh shares of Sula Vineyards, 11 lakh shares of Elin Electronics and 9 lakh shares of Jubilant Ingrevia Ltd. In addition, mutual funds also purchased smaller quantities of small cap stocks including Hindware Home Innovations, Amara Raja Batteries and IIFL Finance Ltd during the month of January 2023.

Finally, let us look at small-cap selling in the month of January 2023. Mutual funds sold 72 lakh shares of Heritage Foods, 59 lakh shares of Indiabulls Housing Finance, 18 lakh shares of Minda Corporation, 12 lakh shares of KFIN Technologies Ltd, 6 lakh shares of Tata Metaliks, 5 lakh shares of Route Mobile and 5 lakh shares of Sunteck Realty Ltd. In addition, the month of January 2023 also saw mutual funds net selling smaller quantities of CAMS Ltd, DISA India and Stove Kraft Ltd.

What are the broad takeaways that emerge from the January 2023 mutual fund churn data? In the large caps, there is a shift into new age digital stocks and there is some exit from stocks where the guidance is not too exciting in the quarterly results. However, the mid-cap and the small cap have been a lot about alpha hunting. Many of these stocks have also seen aggressive buying since small cap funds and mid-cap funds have led equity inflows in the last few months.