July 2022 was unique in one sense. After 9 months of consistent selling by the FPIs, July saw FPI buying to the tune of $634 million. The figure may look paltry when juxtaposed with $33 billion of selling in the 9 months prior to that. July was another busy month for the domestic funds. Stable SIP flows ensured that equity funds stayed well supplied and there was enough to churn in the markets. Domestic mutual funds spread their investments across large caps, mid-caps and small caps. While large caps provide beta and stability the mid-caps and small caps provide alpha, or what is known in simple parlance as excess returns.
July 2022 was a month of robust flows into equity funds, although it was the passive funds that saw more inflows compared to the active equity funds. However, the real story in equity funds is about SIPs and how investors are persisting with SIPs. Despite challenging stock market conditions and macro headwinds, investors kept their faith in the SIP approach to equity funds and that is the good news.
The million dollar question is; what did the mutual funds do with all these flows and where did they allocate these funds. Here we look at the major large cap, mid-cap and small cap stocks that the mutual funds bought and sold in the month of July 2022. This is not focussed on any specific AMC but a macro look at equity funds overall. The idea is to gain insights into the stock preferences of domestic mutual funds.
What are the large caps that mutual funds bought and sold in July 2022
Let us begin with a rudimentary understanding of large cap stocks. We stick to the AMFI definition based on market cap rankings. Here is how the large caps are identified. The universe of listed stocks on NSE and BSE are ranked descending on market cap. Out of this list, the top-100 stocks by market cap or market value are defined as large cap stocks and reviewed by AMFI every 6 months. Here are the major large cap stocks that mutual funds bought and sold in the month of July 2022.
We begin with the large cap buying in July. Overall, the mutual funds added 1,082 lakh shares of Zomato Ltd, 104 lakh shares of HDFC Life Insurance, 69 lakh shares of UPL Ltd, 43 lakh shares of Berger Paints, 31 lakh shares of Muthoot Finance, 21 lakh shares of Gland Pharma, 16 lakh shares of Siemens Ltd and 5 lakh shares of Piramal Enterprises Ltd. Mutual funds also added smaller quantities of Adani Total Gas and IRCTC Ltd. Mutual funds used lower levels to buy Zomato, but this is substantially on account of the Uber Holdings block deal, which was largely absorbed by mutual funds. Consumer stories saw buying interest.
We now turn to key large cap selling by mutual funds in the month of July 2022. Even in the previous month, there was some effort to sell out of metals and that has continued in July 2022 also. A total of 230 lakh shares of Vedanta Ltd were sold, in the light of the pressure on metal prices. In addition, 164 lakh shares of Ambuja Cements, 147 lakh shares of GAIL India, 126 lakh shares of Wipro, 38 lakh shares of JSW Steel, 37 lakh shares of Indus Towers, 34 lakh shares of LIC and 25 lakh shares of Godrej Consumer Products were sold in July 2022. Mutual funds also sold smaller quantities of Macrotech and Hindustan Zinc during the month of July 2022. The selling was focussed on taking profits off the table on commodity stocks and reallocating to under-priced alternatives.
What are the mid-caps that mutual funds bought and sold in July 2022
What exactly is the methodology to determine if a stock is mid-cap? Here again, we stick to the AMFI definition. Once the top 100 stocks by market cap are classified as large cap stocks; then the 101st to 250th ranked stocks by market cap are classified as mid-cap stocks.
Let us focus on the mid-cap buying first. In July 2022, mutual funds overall added 213 lakh shares of NALCO, 187 lakh shares of GMR Infrastructure, 139 lakh shares of India Energy Exchange (IEX), 127 lakh shares of SAIL, 75 lakh shares each of BHEL, 62 lakh shares of PB Fintech, 56 lakh shares of CG Power, 25 lakh shares each of Sun Pharma & Laurus Labs and 12 lakh shares of Star Health & Allied Insurance. Many of these mid-caps had corrected sharply in the market fall and MFs leveraged the fall to restore sectoral allocations.
We now turn to the major mid-cap selling. In July, MFs sold 109 lakh shares of NMDC, 60 lakh shares of Canara Bank, 41 lakh shares of Oil India, 37 lakh shares of Indraprastha Gas (IGL), 19 lakh shares of Kansai Nerolac Paints, 16 lakh shares of L&T Finance Holdings and 12 lakh shares of Polycab India in July 2022. There was also selling in Colgate Palmolive, LTTS and ICICI Securities in smaller quantities. The theme was to stay light on mid-caps where news flows were not encouraging. But with oil topping out, there has been perceptible value hunting in mid-caps.
What are the small caps that mutual funds bought and sold in July 2022
Finally we turn to the small cap stocks category. On market cap ranking, the stocks ranked 251st and lower are classified as small caps by AMFI and we held that definition. Here we look at key small cap stocks where mutual funds were active in July 2022.
In July 2022, mutual funds added 56 lakh shares of Granules India, 36 lakh shares of Kalyan Jewellers, 26 lakh shares of Sapphire Foods, 25 lakh shares of India Cements, 12 lakh shares of Tata Coffee and 11 lakh shares of Rain Industries. Mutual funds added smaller quantities of GNFC, India Pesticides, Eureka Forbes and Ceat in the month of July 2022.
Finally, let us look at small-cap selling in July 2022. Mutual funds sold 88 lakh shares of NCC Ltd, 79 lakh shares of NBCC India Ltd, 50 lakh shares of MRPL, 40 lakh shares of ITD Cementation, 35 lakh shares of Sterlite Technologies & Prism Johnson and over 17 lakh shares of Oriental Hotels and Phillips Carbon Black (PCBL). In addition, mutual funds sold smaller quantities of Mahanagar Gas and SJS Enterprises .
What is the story that emerges from the July 2022 mutual fund churn data? Clearly, there is optimism as mutual funds have focussed largely on buying quality large caps. The bet is on a market revival, wherein it is normally the large caps that lead the way. The broad message is that the mutual funds find the risk reward favourable for the large caps at this point.