Fund managers lapped up stocks across mid, small and largecap space when most other investors were busy booking profits, especially in the April-June quarter. They have raised stake in as many as 133 stocks in the last one year.

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Of these, 31 companies delivered positive returns up to 80 percent. These include: Firstsource Solutions, Zydus Wellness, HIL, GlaxoSmithKline Pharmaceuticals, Asian Paints, Bata India and Bharat Financial Inclusion.

The balance have fallen up to 79 percent over the same period. Notable among them include: Orient Cement, Bharat Electronics, Tata Motors, Engineers India, Bharti Airtel, ABB, Multi Commodity Exchange, Cadila Healthcare, Aurobindo Pharma, NTPC, and UltraTech Cement.

Fund managers have used the correction in the last one year to increase their stake across various sectors. This suggests that these stocks have found favour with them. But can we term these stocks as value bets? Maybe not, suggest experts.

“The stocks bought by fund managers are across sectors like IT, healthcare, consumer durables, automobiles and auto-ancillaries, financials, cement and hospitality. Their investments are well diversified,” Jimeet Modi, chief executive officer and founder at Samco Securities, said, adding that they have bought undervalued stocks which are not necessarily leaders in their respective sector. “They may have bought to deploy fresh inflows that they receive regularly.”

Average assets under management (AUM) of the mutual fund industry surged to Rs 23.40 lakh crore in June, from Rs 21.37 lakh crore seen in December, according to Association of Mutual Funds in India data.

In 2017, midcaps had generated positive alpha (48 percent) by outperforming benchmark indices. But in 2018, things reversed.

“Strong fundamental stock have also corrected in 2018. The recent price correction seems to be a great buying opportunity. So, there exist a possibility that these stocks have turned to be fund managers’ favourites,” Ritesh Ashar, CSO at KIFS Trade Capital, said.

MFs hold double-digit stake in these 51 stocks

Of the 133 stocks in which fund managers have raised their stake in the last 1 year, 51 stocks saw over double-digit stake increases. These include: ITD Cementation India, Bharat Financial Inclusion, Orient Cement, Voltas, Apollo Tyres, RBL Bank, TD Power Systems, MCX, The Ramco Cements, City Union Bank and PTC India.

Stocks in which fund managers hold double-digit stake can at best be used for shortlisting stocks for one’s individual portfolio. Experts are quick to point out that this should be backed up with independent research.

“While there is nothing against investing in stocks where MF holdings are high, as on several occasions it may indicate improving business fundamentals or value in a company, it is imperative for an investor to try and assess the value of a company. One should also pencil in their investment horizon and risk-taking ability, which may be very different from that of MFs,” Jayant Manglik, president at Religare Broking, said.

Are the above mentioned stocks great buys?

Experts cite two important reasons why investors should not follow what MFs are doing: a) Time horizon, and b) Risk-taking ability of a fund which might be much more than that of an individual investor.

A look at the choices made by fund managers in the last 1 year suggests that most are value buys and might be a good addition to individual portfolio as well.

“Stocks like Bata India and RBL Bank have performed quite well in the past few months. Looking at the strong fundamentals of Bata India, the stock looks like a strong buy,” said Ashar of KIFS Trade Capital. “The recent rally in the pharmaceutical sector looks quite impressive, so stocks like Aurobindo Pharma can perform well in the near future,” he added.

Modi of Samco Securities said stocks bought by fund managers had a margin of safety as they have fallen a decent percentage. For example, Power Finance Corporation had fallen 40 percent as the entire state-run banking space was being hammered. “The counter was nowhere concerned with the Reserve Bank's policies on non-performing asset recognition. But as a matter of prudence, the company wrote off all its bad and doubtful assets,” he explained.

“Similarly, cement stocks too have massively corrected and buying them was a sound fund strategy. Fund managers have done a sensible job by adding such stocks when prices had corrected,” he concluded.

Disclaimer: The views and investment tips expressed by investment experts are their own and not that of the website or its management. Users are advised to check with certified experts before taking any investment decisions.

Source: Moneycontrol.com

First Published:Aug 1, 2018 7:20 PM IST