Clearly, Indian mutual funds have been aggressively trying to fish in troubled waters. However, despite Indian mutual funds infusing Rs28,891cr into equities, the Nifty was down by 22.77% in March 2020. One can argue that FPIs exert a bigger influence partially because they deal in large cap stocks and partially because they impact the currency. But that is off the point! The real question is what exactly did the mutual funds buy and sell during the month of March 2020?
Which are the large caps that mutual funds traded in?
|Large Cap Stocks BOUGHT in Mar-20||Large Cap Stocks SOLD in Mar-20|
|Bharti Infratel||Piramal Enterprises|
|Adani SEZ||Colgate Palmolive|
|JSW Steel||Tata Motors|
|Interglobe Aviation (Indigo)||Power Grid|
|Eicher Motors||Asian Paints|
Mutual fund buying in the large caps was led by stocks that had corrected sharply in recent weeks. Bharti Infratel had corrected sharply even as Bharti Airtel had outperformed. Adani Ports and JSW Steel were clearly long term bets on companies with aggressive debt reduction plans. The mutual funds also took the opportunity to add on to favourites like Interglobe and Eicher Motors that had given up more than 40% due to a combination of weak demand and the COVID-19 pandemic.
Surprisingly, MFs sold into FMCG majors Colgate Palmolive and Asian Paints. At best, this could be a profit booking move at a time when FMCG stocks managed to hold value. There is not much surprise in the selling seen in Piramal Enterprises and Tata Motors since both the stock have taken deep cuts from COVID-19 with limited visibility of any recovery.
Which are the mid caps that mutual funds traded in?
|Mid Cap Stocks BOUGHT in Mar-20||Mid Cap Stocks SOLD in Mar-20|
|Tata Consumer Products||GMR Infrastructure|
|PVR Ltd.||Adani Enterprises|
|Shriram Transport||Jindal Steel & Power|
|Ashok Leyland||Edelweiss Financial|
|Castrol India||Adani Power|
The buying in Tata Consumer Products is clearly a play on the Tata FMCG franchise after the restructuring of Tata Global and Tata Chemicals. PVR has taken a hit due to its multiplexes being shut but when things return to normal, stocks like PVR could see the quickest traction. Mutual funds are clearly betting on the transport sector as a proxy for an economic revival post the stimulus. That explains the buying in Shriram Transport, ALL and Castrol, largely proxies for the transport sector.
While mutual funds have been buyers in Adani SEZ in the large caps, they have been sellers in Adani Enterprises and Adani Power in the mid cap space, more a case of profit booking after the rally. The selling in Edelweiss could be more a case of caution considering the challenges that financial services companies are facing and a virtual halt to the IBC activity.
Which are the small caps that mutual funds traded in?
|Small Cap Stocks BOUGHT in Mar-20||Small Cap Stocks SOLD in Mar-20|
|Suprajit Engineering||India Cements|
|Radico Khaitan||Jubilant Life|
|Lakshmi Machine Works||Cera Sanitary ware|
|Sudarshan Chemicals||FDC Ltd.|
Small caps tend to be a lot more stock specific and hence it may be hard to decipher broad trends. But clearly, mutual funds appear to be betting on Spice Jet as a play on consumption recovery (they also bought Indigo). Sudarshan Chemicals is clearly a play on the huge gap left in the global markets by a slowdown in specialty chemicals supply from China post the Wuhan pandemic.
On the sell side, India Cements appears to be a case of taking profits off the table, as is the case with Thyrocare. In Thyrocare, MFs have been taking profits off the table after the initial euphoria surrounding private as COVID-19 testers. The selling in Cera and Jubilant showed some caution on stocks that had rallied during the last one year.
To sum it up, mutual funds have continued to show positive traction in the Indian markets. How long this can continue will largely depend on how robust the SIP inflows into equity funds remain!