IT, Chemicals, Pharma dominate AUM accretion in July 2024

14 Aug 2024 , 11:56 AM

JULY 2024 – EQUITY FUND FLOWS ROBUST, SIPS STEAL THE SHOW

After touching a life time peak of ₹40,608 Crore in equity fund inflows in June 2024, the total inflows into equity funds in July 2024 were slightly lower at ₹37,113 Crore. If you add the May 2024 equity fund inflows of ₹34,697 Crore; we are looking at average monthly inflows into equity funds in the last 3 months of over ₹37,000 Crore. Let us first look at the overall picture of mutual fund flows in July 2024. Mutual funds overall saw net inflows of ₹1.89 Trillion overall, led by ₹1.20 Trillion of inflows into debt. Within the equity fund theme, sectoral / thematic funds led the way with multi-caps / flexi-caps following. These were the specific segments that also saw genuine accretion via NFOs during the month of July. The equity fund flows in July 2024 were triggered by a combination of SIP flows and NFO flows.

Let us now turn to the granular story of what triggered equity fund flows. We will focus on the two triggers viz, new fund offerings (NFOs) and systematic investment plans (SIPs). Let us talk about the NFOs first. The total NFO flows in July 2024 was even better than June at ₹15,565 Crore, of which active equity funds collected more than 80% of the inflows with some contribution also coming from passive equity funds. The other big trigger for equity fund flows was the SIPs. After consistently staying above ₹20,000 Crore for each of the months in FY25, the latest month SIP flows in July saw a sharp spike to ₹23,332 Crore. This is not just the highest monthly SIP collection ever, but also is the sharpest MOM rise in SIPs. All this translated into domestic mutual funds remaining net buyers in Indian equities to the tune of ₹25,089 Crore; as compared to ₹28,226 Crore in June 2024, ₹48,099 in May 2024, and ₹32,824 Crore in April 2024. FPIs or no FPIs; the mutual funds continue to play a very pivotal role in ensuring flow of money into equity markets and that is largely thanks to the steady net flows into equity funds, consistently in the last 3 months.

JULY 2024 – WHICH STOCKS DID INDIAN MUTUAL FUNDS PREFER?

One must remember that ₹25,089 Crore of infusion by mutual funds into equities on a net basis, is close to $3 Billion. That is big enough to create an impact in the Indian markets. But, what are the stocks that the mutual fund bought and sold in the month of July 2024. The MF buying was driven by IPOs and secondary market purchases in the month of July 2024. In fact, some of the top mutual fund buys were IPOs; and these include Emcure Pharma, Bansal Wire Industries, Akums Drugs & Pharma, Sanstar Ltd etc. Here is a quick dekko.

• The most preferred stocks in July 2024 was Emcure Pharmaceuticals, which saw total investments from mutual funds to the tune of ₹783 Crore in the IPO and this was one of the most prestigious IPOs in the month from the Pune based healthcare company.
• The second most preferred stock for mutual funds overall in July 2024 was the IPO of Bansal Wire Industries, which also came out with its IPO during the month of July 2024. The company saw total investments from mutual funds to the tune of ₹504 Crore in the IPO and also some interested buying post listing of the stock in the month.
• The third most preferred stock in July 2024 was Raymond Lifestyle Ltd, which saw inflows of ₹468 Crore. Raymond Lifestyle was the lifestyle business that was hived off from Raymond to separate the realty and textiles business. Investors see a lot of value in a pure lifestyle company.
• The fourth most preferred stock in July 2024 was Pearl Global Industries Ltd, which saw mutual fund buying to the tune of ₹324 Crore in the month. Mutual funds see a lot of prospects in this B2B garments supplier.
• There were two other stocks where the mutual funds showed a lot of interest in the month of July 2024. Tata Motors DVR saw buying to the tune of ₹278 Crore while the IPO of Akums Drugs & Pharmaceuticals also saw buying to the tune of ₹263 Crore. These investments came in the form of anchor shares and QIB allotment.

Apart from the above stocks were the mutual funds took bulk of their positions; the mutual funds were also active in buying other stocks like Sanstar Ltd IPO, R Systems, Navkar Corporation, Zuari Industries etc. On the sell side, mutual funds took full exit from several stocks that included Vascon Engineers, Borosil Scientific, Siyaram Silk Mills etc.

UNDERSTANDING THE MF FLOW STORY FOR JULY 2024

Before we get into sectoral preferences of Indian equity funds in the month of July 2024, it is important to understand the composition of the equity funds universe in India. In India, equity stocks are owned predominantly by active equity funds. However, there are large chunks of equities that are also held by hybrid funds and passive funds. We will come back to that later. Currently, active equity funds hold Indian equities to the tune of ₹29.34 Trillion (net AUM) as of the close of July 2024. The table below captures the active fund break up as of July 2024. It must be noted here that the net AUM ₹29.33 Trillion only refers to the active equity funds and equities owned by other categories are excluded from this classification.

Active Equity Fund Categories	No. of Folios (Absolute)	Purchases (₹ in Crore)	Redemptions (₹ in Crore)	Net Inflows (₹ in Crore)	Net AUM (₹ in Crore)
Multi Cap Fund	73,64,238	9,123	2,038	7,085	1,68,366
Large Cap Fund	1,43,57,880	6,000	5,330	670	3,61,031
Large & Mid Cap Fund	1,00,77,659	5,791	3,169	2,622	2,57,266
Mid Cap Fund	1,60,29,834	7,557	5,913	1,644	3,78,544
Small Cap Fund	2,09,62,913	7,120	5,010	2,109	3,13,488
Dividend Yield Fund	9,91,819	1,027	396	631	30,684
Value Fund/Contra Fund	70,16,092	4,139	1,968	2,171	1,85,632
Focused Fund	50,71,314	2,046	2,666	-620	1,48,162
Sectoral/Thematic Funds	2,47,86,304	27,469	9,082	18,386	4,21,112
ELSS	1,64,63,700	2,065	2,703	-638	2,49,507
Flexi Cap Fund	1,53,77,119	8,821	5,768	3,053	4,20,166
Total Active Equity Funds	13,84,98,872	81,158	44,045	37,113	29,33,958

Data Source: AMFI

As you can see in the table above, the active equity funds have a total of 13.85 Crore folios while they manage a total AUM of ₹29.34 Trillion on a net basis. Now, let us put equity ownership in context. When we look at sectoral preferences, we don’t look at only the active equity funds, but also the equity component of hybrid funds as well as the equity component of index funds and index ETFs. After all, index funds and index ETFs are nothing but the passive replication of the composition of an underlying index in the same ratio. The total equity holdings of the hybrid funds and passive funds in India comes to ₹10.86 Trillion, taking the total value of equity holdings as of July 2024 to ₹40.20 Trillion.

The above figure is critical because the overall equities held by Indian mutual fund are actually to the tune of ₹40.20 Trillion, of which 73% of this AUM is held by active equity funds shown in the table above, while the balance 27% of this overall AUM is held jointly by hybrid funds and passive funds like index funds and index ETFs. When we refer to the sectoral mix of equity holdings of mutual funds, our universe is not ₹29.34 Trillion of active equity fund AUM but the overall ₹40.20 Trillion of equities held by all categories of mutual funds as of the close of July 2024.

HOW MF SECTORAL PREFERENCES SHIFTED IN JULY 2024?

In the month of June, we had seen IT services attracting a lot of attention from domestic mutual funds. That trend has continued into July also, although other sectors like FMCG, pharmaceuticals and chemicals are also in the limelight in the month of July 2024. We shall look at the shifting MF preferences between the previous month and the current month on two parameters. First, we look at the change in absolute rupee terms and then we will look at the change in percentage terms. The absolute numbers are more meaningful, but are also biased towards larger sectors with substantial market cap. On the other hand, percentage change gives due weightage to large and small sectors. Let us first look at sectoral shifts in terms of absolute rupee change; and we only focus on the top-15 sectors.

Top 15 Sectors	MCAP-JUN-24 (₹ in Crore)	MCAP-JUL-24 (₹ in Crore)	MOM Change (₹ in Crore)	MOM Change (in % terms)
IT-Services	3,45,315	3,92,847	47,532	13.76%
Pharmaceuticals	2,97,753	3,26,251	28,498	9.57%
FMCG	1,91,043	2,17,237	26,194	13.71%
Banking & Finance	10,89,699	11,06,197	16,498	1.51%
Chemicals & Fertilizers	1,00,060	1,13,674	13,614	13.61%
Power	1,19,850	1,32,088	12,238	10.21%
Auto & Auto Ancillaries	3,84,042	3,96,217	12,175	3.17%
Infrastructure	1,21,533	1,33,601	12,068	9.93%
Oil & Gas	2,47,022	2,58,019	10,997	4.45%
Retail	91,903	98,308	6,405	6.97%
Consumer Durables	87,922	91,730	3,808	4.33%
Telecom	1,20,713	1,23,410	2,697	2.23%
Shipping & Logistics	42,199	44,579	2,380	5.64%
Diamond & Jewellery	22,913	25,100	2,187	9.54%
Metals & Mining	1,30,640	1,32,782	2,142	1.64%

The above data is the absolute growth in the market cap between June 2024 and July 2024 on a sector-wise basis. We have only listed out  the top-15 sectors in terms of absolute change in AUM to focus on the most significant changes. One word of caution here! Equity fund AUM is a mix of flows and price accretion. In the above case, the MOM absolute growth is led by IT Services, Pharmaceuticals, FMCG, and Chemicals. These 4 sectors alone accounted for over 56% of the value accretion in the month of July 2024. Interestingly, banking comes much lower, despite the largest AUM base. That is not surprising considering the recent momentum against banks. The key takeaway in July 2024 is that, unlike previous months, the focus has been more on the defensive sectors and less on cyclicals.

Let us first look at the sectoral triggers. For IT Services, Pharmaceuticals, FMCG, and Chemicals; the first reason has been that most mutual funds want to reduce their exposure to cyclicals and increase their exposure to the defensive plays. IT Services saw a sharp turnaround after the June quarter results. Most of the leading IT companies not only reported better margins, but also upped their guidance. A strong dollar has added to the aura. For Pharma, it is more of a defensive play, but also the global generic prices are stabilizing and there is a pipeline of drugs going off patent.

Most pharma stocks have been outperformers. FMCG has been one of the stars of the last 6 weeks. The FMCG index is also trading at a lifetime high. This has been partially triggered by better margins and partially by a revival in rural demand. Chemicals was the surprise package. In fact, chemical stocks had been under pressure for some time due to cyclical pressures. However, with China going slow on manufacture of chemicals due to environmental reasons, it opens a much wider playground for Indian chemical companies. Fertilizers are more a play on the Kharif season and better MSP model proposed by the government of India..

The two sectors to see MOM fall in AUM were plastic products and capital goods. The capital goods stocks have taken a knock after the full budget on July 23, 2024 did not hike the capex allocation. That is more of a larger business context risk and not so much a micro risk for the sector. The broad message is that the value accretion story is shifting from the cyclicals and high beta sectors to the defensive and low beta sectors. Let us now turn to the percentage change in the AUM on a MOM basis.

HOW SECTORAL PREFERENCES CHANGED IN PERCENTAGE TERMS

While the absolute shift shows heft, it is the percentage increase that shows retail participation. Check the table below.

Top 15 Sectors	MCAP-JUN-24 (₹ in Crore)	MCAP-JUL-24 (₹ in Crore)	MOM Change (₹ in Crore)	MOM Change (in % terms)
IT-Services	3,45,315	3,92,847	47,532	13.76%
FMCG	1,91,043	2,17,237	26,194	13.71%
Chemicals & Fertilizers	1,00,060	1,13,674	13,614	13.61%
Agri	12,813	14,431	1,618	12.63%
Media & Entertainment	10,707	11,838	1,131	10.56%
Power	1,19,850	1,32,088	12,238	10.21%
Infrastructure	1,21,533	1,33,601	12,068	9.93%
Pharmaceuticals	2,97,753	3,26,251	28,498	9.57%
Diamond & Jewellery	22,913	25,100	2,187	9.54%
Textile	26,660	28,662	2,002	7.51%
Aviation	20,595	22,060	1,465	7.11%
Retail	91,903	98,308	6,405	6.97%
Diversified	18,516	19,593	1,077	5.82%
Shipping & Logistics	42,199	44,579	2,380	5.64%
Oil & Gas	2,47,022	2,58,019	10,997	4.45%

The percentage gains segment in July 2024 throws light on smaller sectors in terms of MF holdings. Incidentally, the rankings are almost the same, whether we look at absolute gains or percentage gains. The only two exceptions to come up in percentage terms were agricultural sector and media sector. While the former is due to the ongoing Kharif season and the higher MSP and food subsidy allocations, the latter is due to the outperformance by Sun TV in the last one month.

IPO buying in the month of July 2024 was seen across the board, although mutual funds continue to be cautious about stock valuations at higher levels. The big story of the month of July 2024 was the silent shift in the onus of MF AUM from the cyclicals and aggressive names to the defensive and non-cyclical names!