Mid Cap equity bets of the Big-3 Funds in Feb-21

In India, the top 3 ranks by AUM are dominated by the 3 large bank-sponsored mutual funds viz. SBI Mutual Fund, HDFC Mutual Fund and ICICI Pru Mutual Fund.

March 22, 2021 8:58 IST | India Infoline News Service
The big story in the last 9 months has been that mutual funds were selling in equities since equity fund investors were redeeming. This glosses over the fact that the rally in the Nifty and Sensex led to a consistent rise in the assets under management (AUM) of mutual funds. Hence, what also needs to be looked is how mutual funds churned their portfolios. Since it is not feasible to look at all the 41 AMCs, we only focus on the 3 largest AMCs by AUM.

Why the Big-3 AMCs have a big impact

In India, the top 3 ranks by AUM are dominated by the 3 large bank-sponsored mutual funds viz. SBI Mutual Fund, HDFC Mutual Fund and ICICI Pru Mutual Fund. In terms of overall AUM of the Indian mutual fund segment, these 3 funds account for 42% of the total AUM. What is more relevant is that these 3 funds account for 56% of total equity AUM as of February 2021. For the 9 months between Jun-20 and Feb-21, MFs were net sellers in equity to the tune of Rs123,004cr, being net sellers in each of the 9 months. However, the churn story is evident when you consider that mutual funds made purchases Rs515,232cr and sold equities worth Rs638,236cr during this period.

While a big chunk of the above churn was large caps, what normally gets ignored is the mid-cap and small-cap action. As far as these mid and small stocks are concerned, FPIs are normally not too interested in them. Hence the institutional investors really influencing these mid-caps are the domestic mutual funds. Here is what they did.

Mid and small-caps that SBI MF bought and sold in Feb-21?

One of the biggest mid cap buys of SBI MF was ESAB India an MNC player into precision cutting tools. SBI MF is clearly looking at it as a proxy for the industrial recovery as they pumped in Rs243cr into the stock. The AMC also pumped in Rs6.3cr into Sundaram Fasteners and Rs5.2cr into Vodafone Idea or Vi, as it is now called.

However, SBI MF was also an active participant in the IPO space. It infused a whopping Rs70cr into Hyderabad-based MTAR Technologies, a high-tech play on the defence and space research segment. In fact, SBI MF accounted for 86% of the total IPO investment by all mutual funds into MTAR Technologies.

SBI MF also had its mid-cap sell-list. It sold Rs33cr of ABB Power Products and Rs28cr of Thyrocare Technologies, which had rallied on COVID testing demand expectations. SBI Fund also sold Rs11cr worth of Tata Metaliks and Rs8cr of Fairchem Organics during Feb-21.

Mid and small-caps that HDFC Mutual Fund bought and sold in Feb-21?

HDFC Mutual Fund was also a major participant in the IPO market. The fund invested Rs71cr in the RailTel IPO accounting for 25% of the total MF investments in that IPO. In addition, HDFC MF also infused Rs23cr into the Heranba IPO accounting for 60% of total MF investments into that particular IPO. However, the action was not just about IPOs.

HDFC MF infused Rs32cr into SAIL and Rs27cr into Sterlite Technologies. SAIL was a clear play on the revival in steel through an under-priced PSU stock. In addition, the fund also infused Rs12cr into Johnson Controls, IGL and Gujarat Gas; essentially a play on the revival expected in gas stocks.

Among the big sells, HDFC Mutual Fund sold shares worth Rs36cr in Rain Industries and Rs20cr in Adani Enterprises. Both the stock had rallied sharply in the last one year. In addition, the fund also exited other stocks that had generated good returns like Orient Refractories, MRF, Indiamart, Colgate Palmolive and Berger Paints.

Mid and small-caps that ICICI Pru MF bought and sold in Feb-21?

The biggest investment made during the month of Feb-21 by ICICI Pru Mutual Fund was the IPO of RailTel Corporation. The company infused Rs39cr into the RailTel IPO accounting for 15% of the total investment made by all mutual funds in the IPO. In addition, ICICI Pru also bought a very small stake in Wonderla Holidays to capitalize on the expected recovery in tourism stocks in the post-COVID scenario.

Among the mid cap stocks, ICICI Pru MF sold Rs8cr worth of Elgi Equipment and around Rs2cr each in Precision Camshafts, Tejas Networks and the Bombay Stock Exchange. These were more like adjustments where stocks had rallied in the last one year, especially Tejas and Elgi which have had a very solid run in price.

Broadly, mutual funds have been taking the leadership in giving cues on their mid-cap and small cap choices. But the real big story was the huge appetite that Indian mutual funds have shown for the IPO story!

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