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How MFs churned large caps, mid-caps, and small caps in March 2024

22 Apr 2024 , 09:42 AM


Mutual funds saw net redemptions overall in the month of March 2024, largely on account of the heavy redemptions in debt funds to the tune of ₹1.98 Trillion. This was substantially accounted for by outflows from liquid funds which is normal at the end of each quarte for payment of advance tax. However, the real story was in equity funds. The equity fund flows in March 2024 may have been lower than in February, but the trend was still quite decisive. More importantly, as we shall see later, there were distinct sectoral paradigms that emerged in March 2024 in terms of mutual fund preferences. One can argue that equity fund flows were largely driven by SIP flows, and that is largely true. At ₹19,271 Crore, the gross SIP flows in March 2024 stood at an all-time record. In fact, had it not been for the string of holidays towards the end of March, the SIP gross inflows in March may have well crossed the ₹20,000 Crore mark. The NFO flows were relatively subdued in the month, although the NFO narrative was still dominated by the equity funds in March 2024.


You really cannot expect the sectoral flow patterns to entirely shift in a month, but some trends are surely emerged. While banks continue to be the largest exposure of the mutual funds (which is tune with the index composition also), there are other sectors that appear to have growth in importance in the mutual fund view of things. For instance, it was observed that in March 2024, the mutual funds in India did show a distinct preference for sectors like capital goods, consumer durables, private banks, automobiles, and healthcare. All the above sectors showed a MOM increase in their weightage in the overall portfolio of mutual funds.

However, not all was rosy for the sectoral mix. Some sectors saw negative flows due to business risks while others saw outflows due to being fully valued on the back of a very sharp rally in the last few months. Technology was one sector that dominated the mutual fund sell-off in the month of March 2024. However, there were also other sectors that saw selling by mutual funds including public sector banks, cement, realty, and infrastructure. These are sectors where stocks had rallied sharply in the last few quarters as the business outlook has improved. However, at higher levels, mutual funds are turning cautious.

What exactly triggered the sell-off in technology stocks? There have been several reasons and the technology stocks have been under pressure for some time now. For instance, in March 2024, most IT stocks came under pressure after Accenture downgraded its guidance for constant currency (CC) revenue growth to the range of 1-3%. That is sharply lower than the previous guidance of 2-5% range. The problems for the IT sector stem from top line revenues slowing due to subdued technology spending in Western nations as well as pressure on costs leading to pressure on operating margins. This view of mutual funds has been largely ratified, if you read the fine print of the Infosys Q4FY24 results.

Among the others; cement, real estate and infrastructure were the primary beneficiaries of greater transparency and the government thrust to infrastructure through focused capex. That was the story for the last 3 years and most of the cement, infrastructure and realty stocks have grown manifold in the last few years. However, that argument has changed after the latest Union Budget for fiscal year 2024-25 announced a reduction in budgeted capex growth to just 11%, in contrast to 30% in the last 2 years. This did result in lost of momentum in these sectors, which are likely to take an immediate hit. PSBs have been the star performers in recent months on the back of a sharp turnaround in performance. However, most PSU banks have run up sharply and the comfort on valuations does not appear to be there any longer.


Having seen how the mutual funds preferred some sector over other sectors, let us turn to how this resulted in the shift in sectoral weightages in mutual fund holdings. Here are some key takeaways from the March 2024 data on mutual fund buying and selling.

  • Despite the caution among the mutual funds, private banks continue to dominate the mutual fund holdings with nearly 17% of the portfolio of mutual fund accounted for by the private sector banks. That is in sync with their weight in the Nifty index too.
  • However, the real story is that other sector are also build up heft. For instance, now mutual fund have an 8.3% exposure to automobiles, 7.9% to capital goods and 7.4% to healthcare. That is an eclectic mix of aggressive and defensive sectors. Telecom also saw accretion, but that is more due to the aggressively buying seen in Bharti Airtel.
  • What about technology? Despite the recent sell-off, technology continues to be a robust 8.7% of all mutual fund holdings in equities. That is due to the substantial weight that IT stocks still have in the index. It is also that mutual funds are expecting that the worst may be over, or almost over, for the Indian IT sector.
  • Finally, let us look at weightage from a different perspective. Here we look at how the sectoral weights measured up vis-à-vis the respective weightages in the benchmark BSE 200 index? Sectors like healthcare, capital goods, consumer durables, automobile and NBFCs were the major sectors where the share of equity mutual funds is, at least 1% more than the corresponding weightage of the stock in the benchmark index.
  • Let us finally look at sectors that are still under-owned when compared to the underlying benchmark index, viz. BSE 200 index. These sectors that are minimum 1% lower than the weight in the index on MF portfolios include consumer durables, oil & gas, technology, private banks, and utilities. These are also the sectors where the momentum has faltered in the last few months.

The moral of the story is that there is a clear paradigm shift in what the mutual funds own and the sectoral mix of their holdings. Let us now get down to the granular stocks of large cap, mid-cap, and small stocks that mutual funds bought in March 2024.


There were several stocks that saw a surge in buying by mutual funds in the month of March. The stock that saw the best accretion in March was HDFC Life Insurance. The insurer has been among the best performing private insurers in terms of NBP accretion on a consistent basis. The stock has been recently rerated by many brokerage leading to a 17% accretion in mutual fund holdings in the month of March 2024 over February 2024. ITC has always been a solid defensive bet for mutual fund managers. Now, there is also a growth story as the company has been consistently ramping up its non-cigarette business, especially the FMCG business. Despite concerns over rural demand, IT looks the most de-risked among the FMCG stocks. It is not surprising that the stock saw 16.3% accretion in mutual fund holdings in March 2024 over February 2024.

TCS was another stock that saw substantial accretion in mutual fund holdings in March. To be fair, this was largely driven by the block sale of TCS shares to the tune of ₹9,300 Crore by Tata Sons as part of its monetization plan. Much of this was absorbed in the hope that TCS  would continue to do better than the median IT large cap in India. TCS saw a value accretion of 10.7% in the holding value of mutual funds in March 2024 over February 2024. The other stock was Eicher, which is now seen as under-priced paly on the automotive sector in India. The stock price has struggled in the recent past, but things appear to be falling in place for the innovative auto major. Other than Eicher, the other stock that attracted a lot of MF buying interest was JSW Steel, which showed record steel output this year. Also, the prospects of improving macros in China has positive ramifications for commodity prices in the metals space. That has been a key reason for the interest in the JSW Steel stock.


The pressure on the mid-caps was quite visible. It was not just about the tax farming happening in the mid-cap space, since stocks in the sector had rallied sharply in the last few months. It was also about investors getting slightly cautious due to factors like the SEBI warnings and the higher ASM margins imposed by SEBI on such stocks, apart from subjecting the mutual funds to a lot of implicit restrictions on mid-cap funds in India. Mutual funds were net buyers in 57% of the stock in the Nifty 100 index while in the remaining 43% of the stocks, the mutual funds were either neutral or negative. That shows a rather mixed market with a lot of ambivalence about the future of mid-caps.

Let us turn to the specific mid-caps that attracted fund attention. Mazagon Docks remained the top purchased mid-cap stocks in India due to the slew of defence orders coming its way. It is being seen as a veritable play on the Indian defence in-sourcing as well as its growth in exports. The other stocks that saw accretion among the mid=-caps included stocks like SAIL, Dr Lal Pathlabs, Bandhan Bank and JSW Energy. While JSW Energy is a recently listed energy play, Bandhan Bank appears to he corrected more than warranted and its conservative in last few quarters would be helpful for the group.


Let us finally turn to the small caps. Like in the case of mid-caps,  even in small caps, the funds were cautious. Here again, the ambivalence of the regulatory authorities and the ambivalence of the investors kept the story under pressure. A total of 60% of the stocks saw mutual fund buying, while in the remaining cases the mutual fund were either neutral or net sellers. Some of the preferred stocks in this space for mutual funds included stocks like NLC India Ltd (formerly Neyveli Lignite Corporation), Aavas Financiers, MGL, Piramal Pharma and Happiest Minds. There is not much of a sectoral or thematic story and the focus here appears to be one of a bottom=up and stock specific preference list for mutual funds.


The overall AUM of Indian mutual funds fell from over ₹55 Trillion in February 2024 to about ₹53.4 Trillion in March 2024. However, that macro story was skewed by the sell-off in debt. How did equity AUM look like in March 2024? On a yoy basis, the equity AUM was up 52% for the top 20 asset management companies. However, if you look at the equity AUM of the top-20 funds on an MOM basis, it is up 2.3%. This is higher than the Nifty value accretion in February 2024. On a yoy basis, the overall AUM of equity funds jumped by 35%, although the growth story of the top funds has not been too encouraging. Mutual funds continue to use their shopping baskets to cherry pick stocks and that trend was visible in March 2024. However, the other trend is that there is a clear preference towards large cap stocks where the price risk appears to be much lower. That may not always be correct.

Related Tags

  • LargeCaps
  • MF
  • midcaps
  • MutualFunds
  • smallcaps
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