For 4th month, top MF stock exits exceed new additions


Cogencis, Friday, Aug 14, 2020

By Rajesh Gajra

NEW DELHI – Fund managers have taken advantage of the liquidity-driven rally in domestic equities to exit stocks whose prospects have been undermined by the economic crisis triggered by COVID-19. For the fourth month running, equity fund managers at top mutual funds exited more stocks than they added in July, a sign that they remain circumspect of the market's rapid gains despite uncertainty around domestic demand and a global economic recovery.

In July, top fund houses sold more than 90% of their holdings in 51 stocks, while adding 34 stocks to their equity portfolios, according to an analysis of data from brokerage house East India Securities.

Equity Fund Managers Took Advantage Of The Rising Share Prices To Book Profits In Stocks That They Perceived To Be Overvalued And For Which The Medium-term Prospects Were Considered To Carry High Risks In The Wake Of The Slowdown In The General Economy.

While stocks from sectors such as real estate, pharmaceuticals, consumer durables and industrials were prominent among the exits by large fund houses, those from infrastructure, chemicals and petrochemicals were also in the mix.

According to analysts, the high count of exits represented an active churn of portfolios by equity fund managers who struggled to make sense of the elevated levels of stock markets in July despite weak earnings reported by most companies for the quarter ended June.

Last month, stock markets rose, continuing with the trend recorded in June. The broad-based Nifty 500 rose 7% on month in July, after having gained 8% in Jun. In May, it had fallen 2% after rising sharply by 15% in April.

Equity fund managers took advantage of the rising share prices to book profits in stocks that they perceived to be overvalued and for which the medium-term prospects were considered to carry high risks in the wake of the slowdown in the general economy.

Fund houses also had to sell stocks to meet redemption pressure in July. According to data by the Association of Mutual Funds in India, there was a net outflow of 25 bln rupees from equity funds last month, the first time since June 2016 that equity funds posted a monthly net outflow.

The data under review covered the portfolio changes in Aditya Birla Sun Life Mutual Fund, Axis Mutual Fund, Franklin India Mutual Fund, HDFC Mutual Fund, ICICI Prudential Mutual Fund, IDFC Mutual Fund, Kotak Mahindra Mutual Fund, Nippon India Mutual Fund, SBI Mutual Fund, and UTI Mutual Fund.

In July, the list of notable stock exits by top fund houses included DLF Ltd, Consolidated Construction Consortium Ltd, Oberoi Realty Ltd, Alembic Pharmaceuticals Ltd, Natco Pharma Ltd, Dabur India Ltd, Precision Camshafts Ltd, Tejas Networks Ltd, and Vedanta Ltd.

Among the list of fresh stock additions by top fund houses were non-banking financial companies such as HDFC Life Insurance Co Ltd, SBI Cards and Payment Services Ltd, and ICICI Lombard General Insurance Co Ltd.

The data under review excluded equity holdings of arbitrage funds. Some regular equity schemes covered by the data may, however, have traded in stock futures and in such cases, the buying and selling in shares of companies could be against the contra positions in stock futures.

The analysis also excluded stocks in which exits or new additions were of a quantum less than 5,000 shares. Further, any exits or additions on account of corporate action were also excluded from the review.  End

Edited by Avishek Dutta

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