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Domestic fund managers looked less sanguine about the basket of next-50 stocks (Nifty Next 50).

Updated: Nov 05, 2019, 02.33 PM IST

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This suggests fund managers are expecting non-performing largecaps to play catchup from here on as index heavyweights become crowded trades.

NEW DELHI: Stocks with little say in benchmark Nifty saw strong buying interest from mutual funds (MFs) in September quarter, as the hunt for value intensified on Dalal Street.

These DIIs hiked stakes in 17 Nifty companies by at least 100 basis points this past quarter, even when 14 of these stocks have failed to match the index’s 10 per cent return so far in Calendar 2019. These stocks mostly included Nifty non-heavyweights.

This suggests fund managers are expecting non-performing largecaps to play catchup from here on as index heavyweights become crowded trades.

As many as 21 Nifty stocks are down so far this year. And data shows 20 of them have not much say in Nifty movement. In contrast, only three index heavyweights – RIL, TCS and HDFC Bank – have added half of the rise in Nifty market capitalisation this year. This might have made the non-performers look attractive.

“If you exclude the top 10 Nifty heavyweights, other index constituents have been a drag this year. Post corporate tax cuts, a lot of funds are looking to create alpha by investing in index non-heavyweights and non-index stocks,” said Rahul Shah of Motilal Oswal Financial Services.

Domestic fund managers looked less sanguine about the basket of next-50 stocks (Nifty Next 50). Midcaps, too, failed to attract much mutual fund buying during the quarter.

Sunil Jain of Nirmal Bang Securities said MF money has been chasing only a few largecap stocks that are deemed safe bets. “But initial signs suggest risk appetite is coming back. If it sustains for the next couple of months, we may see fresh money going into index non-heavyweights and even into select midcaps,” Jain said.

Data showed MFs increased stake in Ultratech Cement by 400 basis points in Q2 to 8.1 per cent from 4.1 per cent even while the stock has risen just 4 per cent year to date.

The stock is not among the Nifty heavyweights that comprised HDFC Bank (11.25 per cent), Reliance Industries (9.68 per cent), HDFC (7.23 per cent), Infosys (6.26 per cent) and ICICI Bank (5.94 per cent). Top 10 Nifty stocks accounted for 61 per cent of Nifty weight as of September 30.

In IndusInd Bank, another minnow in Nifty, mutual fund holding jumped to 12.6 per cent at the end of second quarter from 9.2 per cent at the end of first. This stock is down 17 per cent for so far in Calendar 2019.

YES Bank saw MF stake rise to 9.3 per cent from 6.6 per cent, sequentially. This stock is down 61 per cent year to date. Coal India, NTPC, Cipla, Eicher Motors, GAIL and Dr Reddy’s Labs are a few other stocks which have delivered negative returns and yet mutual funds have raised their stakes in it by 100-200 basis points.

Meanwhile, BPCL has seen an increase in MF holdings by 250 basis points and Axis Bank by 240 basis points. The two stocks are up 45 per cent and 18 per cent, respectively, so far this year.

In the case of Nifty Next 50, which comprises the next 50 largecaps after Nifty constituents, only five stocks saw MF holding go up by more than 100 basis points during the quarter.

The stocks included ICICI Lombard General Insurance (up 410 bps QoQ), HPCL (200 bps), Power Finance Corporation (170 bps), Motherson Sumi Systems (160 bps) and Avenue Supermarts (100 bps).

In the case of 100 Nifty Midcap stocks, only 14 saw over 1 percentage points rise in MF holding.

Mahanagar Gas, LIC Housing Finance, Alkem Laboratories, The Federal Bank, Crompton Greaves Consumer Electricals, TVS Motor Company, Oil India and Jubilant FoodWorks were a few of them that saw MF holding rise by 180-420 bps during the quarter gone by.

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