IT, Pharma, and Retail topped MF shopping list in August 2024

16 Sep 2024 , 03:02 PM

AUGUST 2024 – EQUITY FUND FLOWS STILL ROBUST

After touching a life time peak of ₹40,608 Crore in equity fund inflows in June 2024, the total inflows into equity funds tapered in July and August. However, the fall was not too steep. It fell to ₹37,113 Crore in July and bounced slightly to ₹38,239 Crore. If you consider the average monthly inflows into equity funds in the last 4 months, It comes to a healthy level of ₹37,664 Crore. Let us first look at the overall picture of MF flows in August 2024.

Mutual funds overall saw net inflows of ₹1.08 Trillion across all categories of mutual funds in August 2024, led by ₹45,169 Crore of inflows into debt, followed by equity funds at ₹38,239 Crore. Within the equity fund theme, sectoral / thematic funds led the way with multi-caps / flexi-caps following. The sector funds were the specific area that also saw genuine accretion via NFOs during the month of August. The equity fund flows in August 2024 were triggered by a combination of SIP flows and NFO flows.

NFOS AND SIPS CREATED MAGIC FOR EQUITY FUND 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). Total NFO flows in August 2024 was slightly lower than July, but still robust at ₹13,815 Crore, of which active equity funds collected over 80% of the inflows with some contribution coming from passive equity funds and Balanced advantage funds (BAFs). The other big trigger for equity fund flows was the SIPs. After consistently staying above ₹20,000 Crore each month in FY25, the latest month SIP flows in August 2024 saw a new record high of ₹23,547 Crore.

This is not just the highest monthly SIP collection ever, but also the sixteenth month of consecutive rise in monthly gross SIP flows. All this translated into domestic mutual funds remaining net buyers in Indian equities to the tune of ₹31,685 Crore; compared to ₹25,089 Crore in July 2024, ₹28,226 Crore in June 2024, ₹48,099 in May 2024, and ₹32,824 Crore in April 2024. The robust funds into equity funds are making mutual funds net buyers, irrespective of FPI action. Let us now turn to the most preferred stocks by mutual funds in the month of August 2024; where the net buying was the most robust by mutual funds.
AUGUST 2024 –STOCKS INDIAN MUTUAL FUNDS PREFERRED?
One must remember that ₹31,685 Crore of infusion by mutual funds into equities on a net basis, is about $3.77 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 August 2024. The MF buying was driven by IPOs and secondary market purchases in the month of August 2024. In fact, some of the top mutual fund buys were IPOs; and these included Ola Electric Mobility, Brainbees Solutions, Premier Energies, Ceigall India etc. Here is a quick dekko.

• The most preferred stocks in August 2024 was Ola Electric Mobility, which saw total investments from mutual funds to the tune of ₹2,739 Crore in the IPO and this was one of the most prestigious IPOs in August from India’s largest 2-wheeler EV company.
• The second most preferred stock for mutual funds overall in August 2024 was the IPO of Brainbees Solutions Ltd, which also came out with its IPO during the month of August 2024. The company saw total investments from mutual funds to the tune of ₹2,554 Crore in the IPO; with interest coming in the anchor portion and the QIB portion.
• The third most preferred stock in August 2024 was again the IPO of Premier Energies Ltd, which saw inflows of ₹623 Crore. Premier Energies focuses on the fast emerging green energy space and was again and IPO that saw robust anchor and QIB participation.
• The fourth most preferred stock in August 2024 was the IPO of Ceigall India Ltd, which saw mutual fund buying to the tune of ₹280 Crore in the month. Mutual funds evinced a lot of interest in the anchor and QIB portion of the construction engineering company.
• There 3 other IPOs that also attracted a lot of buying interest from mutual funds; including Unicommerce E-Commerce Solutions, Interarch Building Products, and ECOS India Mobility. There was also selective selling by mutual funds in August 2024. Tata Motors DVR saw selling to the tune of ₹278 Crore while NACL Industries, Ashapura Minechem, Gulshan Polyols, and Deccan Cements saw selling in the month.

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 Bazaar Style Retail IPO, V2 Retail, Shriram Pistons, Max Estates, and D-Link India.
UNDERSTANDING THE MF FLOW STORY FOR AUGUST 2024

Before we get into sectoral preferences of Indian equity funds in the month of August 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 August 2024. The table below captures the active fund break up as of August 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	76,63,105	4,834	2,359	2,475	1,73,103
Large Cap Fund	1,46,41,638	6,539	3,902	2,637	3,68,401
Large & Mid Cap Fund	1,03,16,175	5,881	2,587	3,294	2,63,809
Mid Cap Fund	1,67,02,539	7,235	4,180	3,055	3,84,658
Small Cap Fund	2,15,73,827	6,959	3,750	3,209	3,19,968
Dividend Yield Fund	10,27,942	826	326	500	31,517
Value Fund/Contra Fund	72,65,493	3,627	1,899	1,728	1,90,474
Focused Fund	50,80,648	1,863	1,947	-84	1,50,440
Sectoral/Thematic Funds	2,63,68,314	25,381	7,264	18,117	4,44,944
ELSS	1,65,49,630	1,881	2,087	-205	2,52,389
Flexi Cap Fund	1,56,85,939	7,516	4,003	3,513	4,29,312
Total Active Equity Funds	14,28,75,250	72,542	34,303	38,239	30,09,013

Data Source: AMFI

As you can see in the table above, the active equity funds have a total of 14.29 Crore folios while they manage a total AUM of ₹30.09 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 ₹11.12 Trillion, taking the total value of overall equity holdings as of August 2024 to ₹41.21 Trillion.

The above figure is critical because the overall equities held by Indian mutual fund are actually to the tune of ₹41.21 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 (aggressive hybrids, BAFs, multi-asset allocation funds, and equity savings 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 ₹30.09 Trillion of active equity fund AUM but the overall ₹41.21 Trillion of equities held by all categories of mutual funds as of the close of August 2024.

HOW MF SECTORAL PREFERENCES SHIFTED IN AUGUST 2024?

In the month of June, we had seen IT services attracting a lot of attention from domestic mutual funds. That trend has sustained in the last 3 months. Apart from IT services, other sectors like Pharma, Retail, and banking & finance are also in the limelight in the month of August 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 between August 2024 and July 2024.We will also look at the change in percentage terms. The absolute numbers are more meaningful, but are biased towards larger sectors with substantial market cap. On the other hand, percentage change gives due weightage to large and small sectors and is hence more size-agnostic. 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-JUL-24 (₹ in Crore)	MCAP-AUG-24 (₹ in Crore)	MOM Change (₹ in Crore)	MOM Change (in % terms)
IT-Services	3,92,847	4,17,846	24,999	6.36%
Pharmaceuticals	3,26,251	3,44,126	17,875	5.48%
Retail	98,308	1,11,604	13,295	13.52%
Banking & Finance	11,06,197	11,14,016	7,819	0.71%
Auto & Auto Ancillaries	3,96,217	4,03,690	7,473	1.89%
FMCG	2,17,237	2,22,130	4,893	2.25%
Oil & Gas	2,58,019	2,62,820	4,800	1.86%
Aviation	22,060	25,864	3,803	17.24%
Telecom	1,23,410	1,26,967	3,558	2.88%
Consumer Durables	91,730	94,415	2,685	2.93%
Diamond & Jewellery	25,100	27,779	2,679	10.67%
Agri	14,431	16,392	1,961	13.59%
Chemicals & Fertilizers	1,13,674	1,14,718	1,044	0.92%
Alcohol	25,220	26,259	1,040	4.12%
Textile	29,130	29,840	710	2.44%

The above data is the absolute growth in the market cap between July 2024 and August 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; so, there is a bit of both here. In the above case, the MOM absolute growth is led by IT Services, Pharmaceuticals, Retail, BFSI, and automobiles. These 5 sectors alone accounted for over 81% of the value accretion in the month of August 2024. Interestingly, banking comes only at fourth place, despite the largest AUM base. That is not surprising considering the recent momentum has not favoured banks. The key takeaway in August 2024 is that, unlike previous months, the focus has been more on the defensive sectors and less on cyclicals. Retail largely refers to ecommerce plays.

Let us first look at the sectoral triggers. For IT Services, Pharmaceuticals, Retail, and FMCG. the first reason has been that most mutual funds want to reduce their exposure to cyclicals and increase their exposure to the defensive plays. That is the low-hanging trade. IT Services saw a sharp turnaround after the June quarter results. Indian IT companies (large and mid-caps) not only reported better margins, but also upped their guidance. A strong dollar has added to the aura. Pharma was more about global generic prices stabilizing and a pipeline of drugs going off patent. Discovery of India pharma market could be a big story.

Retail, this time around, was a lot about ecommerce plays and such focused IPO plans like Brainbees Solutions (FirstCry). FMCG has been one of the stars of the last 6 weeks. The FMCG index is trading at a lifetime high after a long gap. On the downside, margin pressures are still there, but the expected revival in rural demand is the big story for FMCG stocks. Incidentally Aviation has seen a lot of buying interesting on the back of rapid growth in aviation demand as well as a sharp fall in the price of Brent Crude, which is likely to expand the spreads between RASK and CASK for aviation companies.

There were several sectors that saw AUM falling on a MOM basis in August 2024. Capital good, Infrastructure, and Cements are among the worst hit. Construction and infrastructure activity has slowed down post the elections and the sharp cuts in capex in the full budget is only worsening the situation for the infrastructure plays. Realty also took a hit in the month after the change in tax rules appeared to be loaded against the realty companies. After all, reduced long term capital gains in lieu of indexation benefits is hardly good economics for realty plays. 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 the agnostic sectoral trends.

Top 15 Sectors	MCAP-JUL-24 (₹ in Crore)	MCAP-AUG-24 (₹ in Crore)	MOM Change (₹ in Crore)	MOM Change (in % terms)
Aviation	22,060	25,864	3,803	17.24%
Agri	14,431	16,392	1,961	13.59%
Retail	98,308	1,11,604	13,295	13.52%
Diamond & Jewellery	25,100	27,779	2,679	10.67%
IT-Services	3,92,847	4,17,846	24,999	6.36%
Pharmaceuticals	3,26,251	3,44,126	17,875	5.48%
Alcohol	25,220	26,259	1,040	4.12%
Consumer Durables	91,730	94,415	2,685	2.93%
Telecom	1,23,410	1,26,967	3,558	2.88%
Textile	29,130	29,840	710	2.44%
FMCG	2,17,237	2,22,130	4,893	2.25%
Auto & Auto Ancillaries	3,96,217	4,03,690	7,473	1.89%
Oil & Gas	2,58,019	2,62,820	4,800	1.86%
Diversified	19,593	19,878	285	1.45%
Chemicals & Fertilizers	1,13,674	1,14,718	1,044	0.92%

The percentage gains segment in August 2024 throws light on smaller sectors in terms of MF holdings. Incidentally, aviation, agri stocks and jewellery plays have come into the list at the top. Aviation is on hopes that the lower crude prices will boost their RASK / CASK margins. Agri stocks have been seeing a revival of interest, especially the dairy stocks. The agri sector is clearly betting on a robust Kharif season and the higher MSP and food subsidy allocations.

IPO buying in the month of August 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 August 2024 was the silent shift in the onus of MF AUM from the cyclicals and aggressive names to the defensive and non-cyclical names!