The net MF selling figure of Rs26,514cr for December does not tell us much about the overall action of MFs in equities. For that you need to look at the gross numbers captured in the chart above. MFs bought equities worth Rs61,516cr and sold Rs88,030cr in December leading to total volumes of close to Rs150,000cr. In short, even as MFs have been net sellers, they have been churned equities worth Rs150,000cr in December 2020 alone.
How do we understand the churn in equities by MFs?
Considering all equity funds in the market would be a fairly tedious affair as there are over 40 AMCs and each of these funds must have churned its portfolio to some extent. A better way is to look at the big-3 mutual funds in terms of AUM since they generally set the tone for the markets as a whole.
Overall, the 3 AMCs viz. SBI Mutual Fund, HDFC Mutual Fund and ICICI Pru Mutual Fund, account for nearly 40% of the overall AUM of the mutual funds segment. Let us focus on what these 3 funds have been buying and selling in the large cap and mid cap space.
What SBI MF bought and sold in Dec-20?
In the last few quarters, SBI MF has emerged as the largest Indian mutual fund by a margin and obviously, its actions are closely tracked. In the large cap space, SBI MF was adding IT and pharma names. As overall markets get pricey, SBI MF is seeing value in sectors that are less cyclical and have adopted global business models. SBI picked up TCS, Infy and HCL Tech in the IT space and Reddy Labs and Sun Pharma in the pharma space.
SBI MF pared its stake in large cap FMCG, metal and banks and some of its top sells included Britannia, Tata Steel, L&T, Kotak Bank and Bandhan Bank. In the mid cap space, there were no notable exits and purchases were largely stock specific. It picked up Tata Chemicals, Canara Bank and Escorts. Clearly, SBI MF is looking at rural demand as a mid-cap theme.
What HDFC MF purchased and sold in Dec-20?
HDFC MF had been an AUM leader for a very long time till SBI MF took over. HDFC MF still has an AUM closing in on Rs400,000cr, surely a force to reckon with. The broad approach in the large cap space appears similar to SBI Mutual Fund. HDFC MF reduced its exposure to some of the banks and commodity stocks at the same time buying into pharma stocks. The fund is betting on pharma in a big way ahead of the mass inoculation drive. Some of its big purchases in Dec-20 included Sun Pharma and Lupin; both old economy pharma stocks.
HDFC MF was also quick to find selling opportunities in the banking space after the frenetic rally in banks. HDFC MF sold out of stocks like ICICI Bank, HDFC Bank and Power Grid. Apart from banks, HDFC MF was also a seller in industrial commodity stocks, paring its stake in Tata Steel and Vedanta after the global price driven rally in these stocks. Interestingly, HDFC MF has shown preference for smaller financials like Equitas SFB and M&M Financial. It also accumulated stocks like IRCTC and Havells in the mid cap space.
What ICICI Pru MF traded in the equity markets in Dec-20?
ICICI Pru MF is the third largest fund in India and in the last few weeks it has also seen its AUM moving towards to Rs400,000cr mark. Overall, ICICI Pru has been aggressive in selling out of frontline stocks in the banking and PSU space. Some of the major large cap stocks sold by ICICI Pru MF include HDFC, HDFC Bank, State Bank of India, NTPC and ONGC. It also booked out partially from Tata Power after the smart rally.
Sankaran Naren being largely specialized in the mid-cap space, has made some very stock specific picks in that space during the month of Dec-20. He picked up stocks like Sundaram Clayton, Astec Lifesciences and Birla Soft in the mid-cap space. One surprise decision by the fund was to buy GMR Infrastructure, but that could be a play on the debt reduction story.
To sum it up, it is easy to get carried away by the net mutual fund selling but the real story lies in the gross numbers. One takeaway is that MFs have been consistently booking out of sectors like banking, metals and PSUs and betting more on futuristic stories like IT and pharma. Whether the strategy really works, is something we will know in CY2021!