Key: Mutual Funds, MF, SIP, Reliance Industries, Bharti Airtel,
After being net buyers in the month of March 2020 to the tune of Rs55,595cr, domestic mutual funds were marginal sellers in the month of April. The month of April 2020 saw a smart recovery in the Nifty from lower levels led by a mix of optimistic buying and bouts of short covering. While SIP flows into mutual funds have remained robust, the overall flows into funds have been gradually dwindling due to the sharp spike in volatility. Let us look at the specific stories that equity funds bought into and the stocks they sold out of.
What is it that mutual funds bought into in April 2020?
There was not much of a surprise in the two largest buys during the month of April. Reliance managed a sharp turnaround in fortunes after correcting nearly 50% by late March 2020. Then there were a slew of deals including the 9.99% stake sale in Jio Platforms to Facebook.Subsequently, smaller stakes in Jio Platforms were also sold to Silver Lakes, Vista Equity and then to General Atlantic Partners. With the rights issue also being announced, RIL was on target to become net-debt free by 2021. That spurred a spate of mutual fund buying in Reliance during April 2020.
Bharti Airtel was another preferred stock for MFs. Bharti had moved on from the adjusted gross revenues (AGR) fiasco and was gradually improving its ARPUs. In the March quarter, Bharti Airtel actually did better than Jio on market share accretion and on ARPUs. There was also buying by MFs in TCS and Hindustan Unilever. While HUL buying was more defensive, TCS was more of weightage adjustment by equity funds, especially the large cap and index funds.
In addition, two auto stocks i.e.MarutiSuzuki and Hero Moto saw buying interest from MFs. There were expectations that when the lockdown was lifted, the auto stocks could be the first off the board. This was more so in case of entry level products. Pharma has been preferred as a sector by Indianmutual funds in the last few months considering the COVID-19 related opportunities. So, Sun Pharma was also among the top preferred buys of mutual funds during the month of April 2020.
What is it that mutual funds sold out of in April 2020?
The stock that saw the biggest bout of selling in April 2020 from mutual funds was Larsen & Toubro. The reasons were not far to seek. The company has been under pressure after some state governments opted to review past contracts. Secondly, L&T has a large oil franchise and that is an area where fresh investments were hardly happening. Thirdly, the concern was also that the lockdown could lead to a spate of corporate defaults leading to serious delays in the revival of the capital investment cycle.
There were 3 more stocks in the mutual fund top-sell list. Avenue Supermarts has been under some pressure after the OFS earlier this year when the promoters had also offloaded shares in the market. There were also institutional concerns over valuations, but the stock has continued its upward journey. Tech Mahindra, has been seeing some serious loss of momentum on account of postponement of tech spending. Gartner has estimated that the global tech spending in 2020 could contract by 8% from $3.75 trillion to $3.45 trillion. This $300 billon fall in tech spending is likely to hit concentrated tech companies like Tech Mahindra quite a bit. Finally, ITC has been in the news for all the wrong reasons. The stock has corrected sharply over fears that GST and other penal taxes on cigarettes could be hiked to make up for the revenue shortfall. Also, the lockdown had impacted cigarette sales badly.
To sum it up, mutual funds have used the bounce in April to restructure their portfolio in favour of stocks that are currently in favour. That appears to be a good move.