Large cap, mid-cap, and small caps that MFs traded in May 2023

13 Jun 2023 , 09:07 AM

May 2023 well and truly belonged to the foreign portfolio investors (FPIs). With the foreign investors infusing $5.3 billion into Indian equities, the domestic mutual funds did not have much to do. Even as the SIP flows continued to be robust in the month of May 2023, the NFOs were down to a trickle and the net flows into equity funds were fairly smaller than previous months. In a sense, the months of April and May 2023 have been all about debt flows with nearly Rs1.70 trillion coming into debt funds in the two months of FY24. Equity fund inflows obviously paled in comparison. Even as net flows were fairly small, the gross flows of equity funds and the outflows were quite high, resulting in a heavy churn.

May 2023 was about robust SIP flows and a huge equity churn

One can say that NFO flows were almost negligible in the month of May 2023. However, SIP flows at Rs14,749 crore was quite robust. But that is not the real story. The real story is the churn in equities that mutual fund had to do because of the churn in equity fund flows. Here is why. The net flows of Rs3,240 crore into equity funds may appear to be quite small. However, this was driven by Rs30,809 crore of gross equity fund inflows and Rs27,569 crore of gross MF redemptions. When you are up against that volume of inflows and outflows, equity churn by the mutual funds is almost inevitable. This is just the active equity funds and we are not even counting the equity holdings in hybrid funds and passive funds.

While gross SIP flows at Rs14,749 crore created an all-time record in terms of SIP flows, there was also a sharp accretion in the number of folios and the AUM of SIP holdings. In short, retail participation has been building up. That promises more opportunities for mutual funds to see consistent flows into equity funds in the coming months. If one looks at the overall AUM of mutual funds, it touched Rs43.2 trillion for the first time ever. AUM is a combination of flows and accretion in market value. The AUM surge in May 2023 was largely driven by a surge in debt fund flows and an accretion in equity valuations due to a spike in the index levels.

Now that equity funds were aggressively churning their portfolios in May 2023, the million dollar question is what did they buy and what stocks did they sell. Here we look at a granular picture of mutual fund portfolio churn, based on market capitalization of stocks.

Large cap stocks churned by mutual funds in May 2023

How exactly do we define large caps? For simplicity, we stick to the AMFI definition based on market cap rankings. As per the AMFI methodology, firstly the combined universe of listed stocks on NSE and BSE are ranked descending based on market capitalization. From this list, the top-100 stocks by market capitalization are classified as large cap stocks. This list is reviewed by AMFI on a half yearly basis to ensure definitions are up to date. Here are major large cap stocks mutual funds bought and sold in May 2023.

Let us start with the mutual fund large cap buys first! Overall, the mutual funds added 700 lakh shares of Zomato Ltd, 255 lakh shares of Indus Towers, 245 lakh shares of FSN Ecommerce Ventures Ltd (Nykaa), 187 lakh shares of HDFC Life Insurance, 170 lakh shares of HDFC Ltd, 130 lakh shares of Hindalco Ltd, 58 lakh shares of JSW Steel and 26 lakh shares of UPL Ltd. Apart from the above, mutual funds added smaller quantities of Adani Total Gas and Tata Elxsi Ltd. Interestingly, there seems to be a lot of interest among mutual funds in buying digital start-up stocks in May 2023; which is almost a repeat of April 2023.

We now turn to major large cap selling by mutual funds in May 2023. The selling was prominent in the stocks that had rallied sharply in the recent past. Let us look at the major sell candidates. There was heavy selling of 266 lakh shares in Kotak Mahindra Bank. In addition, a total of 206 lakh shares of Indian Oil Corporation (IOCL), 28 lakh shares each of LIC & Hindustan Aeronautics Ltd, 23 lakh shares of Torrent Pharma, 17 lakh shares of Hero Motocorp, 13 lakh shares of Eicher Motors Ltd and 12 lakh shares of Pidilite were sold in May. Apart from these, mutual funds also sold smaller quantities of Hindustan Zinc Ltd and Macrotech Developers Ltd in May 2023.

Mid-cap stocks churned by mutual funds in May 2023

Let us quickly revisit the AMFI methodology to classify a stock as mid-caps? Under the AMFI definition, once the top 100 stocks by market cap are classified as large cap stocks, the 101st to 250th ranked stocks by market cap would qualify as mid-caps. Here are the mid-cap stocks that mutual funds bought and sold in May 2023.

Let us first focus on mid-cap buying in May 2023. Overall, mutual funds added 816 lakh shares of Vodafone Idea Ltd, 223 lakh shares of IDFC First Bank, 98 lakh shares of Vedant Fashions, 50 lakh shares of Aditya Birla Capital, 37 lakh shares of Laurus Labs, 31 lakh shares each of PB Fintech (Policybazaar), 23 lakh shares of Coforge Ltd and 13 lakh shares of Piramal Enterprises. In addition, mutual funds added smaller quantities of Clean Science & Technology and Colgate Palmolive India in the month.

We now turn to major mid-cap selling. In May 2023. Mutual Funds sold 437 lakh shares of IRFC Ltd, 416 lakh shares of Max Healthcare, 298 lakh shares of Steel Authority of India Ltd (SAIL), 269 lakh shares of Union Bank of India, 268 lakh shares of Indian Hotels, 165 lakh shares of Sona BLW, 134 lakh shares of Bandhan Bank, 95 lakh shares of Aditya Birla Fashions, 20 lakh shares of Kansai Nerolac Paints and 19 lakh shares of Tata Chemicals. The selling in mid-caps was much heavier in May 2023, and it could be due to the recent rally.

Small cap stocks churned by mutual funds in May 2023

We now turn to the small cap stocks. On market cap ranking, the stocks ranked 251st and lower are classified as small caps by AMFI. Here is a quick snapshot of key small cap stocks where mutual funds were active in May 2023. 

In May 2023, mutual funds added 60 lakh fresh shares of Astra Microwave, 55 lakh shares of JTEKT India, 47 lakh shares of Jupiter Wagons, 26 lakh shares of Graphite India, 19 lakh shares of Marksans Pharma and 9 lakh shares of Ujjivan Financial Services. In addition, mutual funds also purchased smaller quantities of small cap stocks like HEG Ltd, Globus Spirits, Mazagon Dock Shipbuilders and Amara Raja Batteries in May 2023.

Let us conclude with the small-cap selling in the month of May 2023. Mutual funds sold 189 lakh shares of Manappuram Finance, 44 lakh shares of Easy Trip Planners, 42 lakh shares of Time Technoplast, 27 lakh shares each of Railtel Corporation, 18 lakh shares of NOCIL Ltd and 12 lakh shares of Elin Electronics. In addition, the month of May 2023 also saw mutual funds selling smaller quantities of stocks like Mastek Ltd, Matrimony.com Ltd and Gujarat Narmada Valley Fertilizers (GNFC).

Finally, for some major takeaways from the buying and selling data of mutual funds in the month of May 2023? In the large caps, there is a shift into digital plays and away from the commodity stocks and that trend has sustained for 2 months in a row. In the mid-cap space, the selling, both in terms of quantum and intensity was much higher than normal. In the small cap space, the approach was largely stock-specific and alpha driven. At a time when the concerns are more at a macro level and about global headwinds, the mutual funds are relying quite heavily on stock selection and stock churn for alpha. It remains to be seen how the subdued outlook of the RBI will change the strategy in the coming months.