The message from these funds in May was unambiguous: risk is being put on the table for banks and home-grown cyclicals. We’ve seen fund managers piling into Mahindra & Mahindra, HDFC Bank and ICICI, and they were not shy about cutting back on the State Bank of India. To an investor, it reads as a bet on what’s happening in the country rather than hunkering down in defensive stocks.
Rotation to growth amid softer inflows
There was a lull in the fresh money coming into flexicap schemes, but that didn’t stop the managers from taking on some risk. The numbers from AMFI put it in perspective: net inflows to these funds were Rs 5,176 crore in May, less than half of April’s Rs 10,148 crore.
And yet, if you look at the size of the operation, flexicaps are still the big fish in the equity pond, with Rs 5.64 lakh crore under management. Mid-caps come in at Rs 4.88 lakh crore, and large-caps at Rs 3.97 lakh crore. In terms of folios, the category had 2.40 crore in May, with only small-caps having more.
We crunched the numbers on 21 of the top fund houses and found a clear pattern: a move towards banks, capital market opportunities and a few choice cyclicals, with some consumer and energy names getting the ax. It’s a sign they’re still in the market for financials and local demand, even if the inflows have waned a bit.
Banks in favour, defensives trimmed
When it came to sectors, there was no dithering. Banks were the ones being bought, with 36 such moves across the 21 fund houses we looked at. Pharma and biotech were next with 34, and you could also spot some activity in finance, autos and capital markets.
New money was put to work in construction, telecom, durables and healthcare. On the flip side, FMCG and the oil and gas space were where the selling was most pronounced. You also saw a step back from aerospace, cement, industrial and transport services.
Stock-level signals to track
Down to the individual stock, it was Mahindra & Mahindra and HDFC Bank that got the most love, with nine AMCs each adding to their position. Eight did the same with ICICI. BSE and Infosys were on the radar of four AMCs, so you see a mix of views in the tech space.
Some of the newer inclusions were in the capital market and consumer side of things. Three portfolios made room for Unlisted Lenskart Solutions. Bharti Airtel and Marico were put in by two AMCs. And then there’s Adani Enterprises, Bharat Heavy Electricals, JSW Energy, Asian Paints, Cipla and SRF – all in good standing with the fund managers.
The cuts, for the most part, were in the heavy hitters. Six AMCs have dialed back on the State Bank of India. ITC, Infosys, Bharat Electronics and PB Fintech all had three sellers. ABB India was the one to make a complete exit for three of them, while SBI and Hero MotoCorp each had two walk away entirely.
If you are an investor trying to make sense of the rotation, here is the story: more appetite for risk in the financial and cyclical corner, some profit-taking in the safe havens, and a few well-considered wagers on the market’s infrastructure and consumers.
Large-cap funds reveal three distinct playbooks
The large-cap side of the house is still pulling in some new money, but the fervour has mellowed. In May, the category put in a net of Rs 1,593 crore, a drop from the Rs 2,525 crore it saw in April.
With gross inflows of Rs 5,050 crore, the category is now on top of a Rs 3.97 lakh crore in assets.
But you have to look under the hood to see what’s really going on. The top three in terms of inflows have been at odds with one another. You had ICICI Prudential Large Cap Fund making a show of it, Nippon India Large Cap Fund for the most part leaving well enough alone with a few tucks here and there, and HDFC Large Cap not touching its portfolio at all.
How the strategies stack up
ICICI Prudential was the clear front-runner, with Rs 2,005 crore in new money that has put its AUM at Rs 76,297 crore. It put some fresh weight into Britannia, Grasim, Kotak and TVS Motor, while making room by getting out of Ashok Leyland, Aurobindo, Bank of Baroda and Gillette.
The numbers: 92 stocks in the book, with the top 10 making up 49.47 per cent of the fund. There’s 5.25 per cent in cash and an 82 per cent turnover. Returns are 12.36 per cent over five years, though the last year has been in the red at -5.9 per cent.
Then there’s Nippon India, which lured in Rs 994 crore. It made inroads with Bharti Airtel, Hindustan Aeronautics and Jubilant FoodWorks but didn’t make any exits. With only 0.25 per cent in cash, you can tell they were quick to put the money to work. Of the 70 stocks it holds, 43.8 per cent are in the top 10. Turnover is 33 per cent and the five-year annualised return is 14.05 per cent.
HDFC, on the other hand, took in Rs 316 crore and left things as they were. It’s the most concentrated of the lot with 47 stocks; the top 10 account for 51.33 per cent. Cash is 2.17 per cent and turnover 27.86 per cent. Five-year returns are 10.95 per cent, with a -6.27 per cent mark for the past 12 months.
It’s these kinds of variations that come into play when you’re thinking about risk. One is happy to be active and keep a little dry powder, another is nearly all-in, and the third is unflinching. Stock counts run from 47 to 92 and turnover anywhere from under 30 per cent to over 80.
Investor takeaways and forward cues
If you follow the fund activity this month, it seems like managers are set on domestic growth and the staying power of financials. They are also edging away from the safety of defensives and energy for something with a bit more beta.
A couple of points to consider:
– Financials have seen the heaviest buying
– There has been some profit-taking across the board in defensives and energy
FinAlpha’s read is that the preference for financials and home-grown cyclicals is down to good feelings on economic growth and where earnings are headed. The selling in a few consumer and energy names is more of a rebalancing than a full retreat.
For the flexicap crowd, the fact that the category is at Rs 5.64 lakh crore with 2.40 crore folios says it all about its place in household portfolios. But if you are in large caps, the variance in how the big inflow winners handle their cash and concentration is a nudge to do your due diligence.
Going forward, we’ll have to see if the lull in May was just a blip. If the growth story is intact, banks and market infra will likely be in vogue. Should volatility re-enter the picture, the more staid, concentrated funds may have to be withstood for a while before they pay off.
Put simply, the way May played out shows a firm belief in the sectors driving India’s growth, even if the approach to get there is a matter of opinion. The opening is there, but you have to be in the right headspace to take it.
