Mutual fund houses have been selectively raising their exposure to Sensex stocks and increasing their stake in Sensex companies. This, at a time when foreign institutional investors (FIIs) have been reducing their exposure to the Indian market and paring their stakes even in the much-favoured Sensex companies.
A study carried out by FE reveals that the average shareholding of mutual funds in the 30 Sensex companies increased marginally from 4.51% during September 30, 2008 to 4.63% during December 31, 2008. However, in sheer volume terms, their stake increased 5.6%, from 145 crore shares in September-end to 153 crore shares as on December 31, 2008. Analysts reckon that MFs are sitting on a pile of cash, around Rs 20,000 crore, to be invested in stocks. They expect MF houses to target the Sensex companies as the market revives.
The share of FIIs in the Sensex companies reduced from 18.16% in the second quarter of the current financial year to 17.47% in the third quarter.
An analyst from a MF house said, ?When the market is volatile with a downward bias, and the growth figures are down, the best alternative would be to hedge with these stocks in the indices. Since the market has already reacted heavily from the peak level, it is also a prudent strategy to look at large cap stocks that may bounce back in case of an improvement in the figures of the economy as well as the corporates.?
Moreover, the Sensex and the Nifty 50 stocks will always be a target for institutions, as they represent a low impact cost. And when there are signs of the market reviving, institutions like to pick stocks with low impact costs as they can sell them quickly without much price loss caused by selling activity. Small and mid-cap stocks tend to move extra, each time an institutional investor buys or sells them, and hence have a high impact cost.
Mutual funds are also playing safe, and in a way defensive, at the moment. The highest increase in MF’s stake was in the case of SBI, followed by HDFC Bank, Maruti Suzuki and Tata Steel. Fund houses have been picking up stakes in companies that have steady income visibility and hold promise. Maruti Suzuki recorded sound numbers in the third quarter.
On the other hand, the share of fund houses in pure commodity companies and real estate-related companies like Jaiprakash Associates, Reliance Infra, L&T and Hindalco Industries decreased significantly during the study period. In the case of Reliance Industries, fund houses decreased their stake from 2.69% in September 2008 to 2.53% in December 2008.
The latest shareholding pattern, as of December 31, 2008, clearly shows that MFs have increased their stake over the September 30, 2008 quarter in IT majors Infosys Technologies and Wipro. Among the 30 sensex companies, the top five according to share of fund houses’ stake to total stake, as of December 31, 2008, are ITC, L&T, Jaiprakash Associates, ICICI Bank and Tata Power.