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Funds' Favourite Buys & Sells

These stocks grabbed fund managers attention

After pulling in surprise gains over the weeks, week after week, stock markets had given investors, including mutual fund managers, the opportunity to book profits as well as decrease their cash holdings by buying into the ongoing rally in April.

These managers had missed the opportunity when valuations were down at the start of the market rally way back on March 9, 2009, and since the bulls did not falter at all, they were in two minds about whether to invest or sit tight.

It would be interesting to find out, therefore, which stocks fund houses booked profit on and which stocks looked attractive to them for effecting purchases at these levels.

April was one of the historic months in Indian stock markets as the Sensex turned in a 17.47 per cent monthly return, highest in almost a decade, and the Nifty 15 per cent. Even the sectoral indices, all of them, ended the month in green territory. Surprisingly, realty stocks gained the most out of the rally with BSE Realty delivering a gain of 36.49 per cent for the month of April, while following it were banking stocks -- BSE Bankex posted a gain of 26.59 per cent after being thrashed badly in the first two months of 2009 and lagging behind Sensex in March.

The Sellers & The Sold
In this situation, the strategy applied by fund houses involved the offloading of the biggest stocks by market capitalisation. This involved the stock with the highest stake in mutual fund’s equity portfolio, Reliance Industries (RIL). Its scrip gained 18.35 per cent in the month, beating the Sensex, even while fund houses sold shares worth Rs 389.39 crore in it. The open-end equity schemes that sold off Reliance Industries the most were HDFC Equity, Reliance Vision and ICICI Prudential Infrastructure. However, RIL still accounts for around 7 per cent of the equity investments of the mutual fund industry as on April 30, 2009.

The second stock that was sold the most during the month was Larsen & Toubro (L&T). While the stock gained 30.76 per cent during the month, again beating the Sensex by a huge margin, the number of schemes holding the stock actually was reduced by 10. Mutual Funds sold L&T shares worth around Rs 318.10 crore.

Next on selling list of mutual funds was Oil & Natural Gas Corporation (ONGC). Stocks worth Rs 253.61 crore were sold by them. The open-end equity schemes that offloaded ONGC the most were HDFC Equity, Tata Infrastructure and Franklin Flexi Cap.

(Also see: Funds' Top 10 Sells)

The Buyers & The Bought
While the sellers had sold off their biggest market-cap holding, the mutual fund buyers, on the other hand, bought the scrip of the biggest in the banking sector. The stock that topped the buying list of mutual funds was the biggest lender, State Bank of India (SBI). Mutual funds made purchases worth Rs 391.36 crore in the stock. While 9 new funds added it to their portfolio taking the total number of funds invested in this stock to 218. The stock gained 19.80 per cent during the month. Among the open-end equity schemes, Reliance Vision was the biggest purchaser of the stock. Following it was DSPBR T.I.G.E.R., HDFC TOP 200, Tata Infrastructure, Reliance Diversified Power Sector Retail and Reliance Tax Saver.

While next on the buying list was IT major Infosys Technologies, perhaps they found its valuation attractive, despite the IT sector coming in for some stick in recent months. Mutual funds made purchases worth Rs 186.45 crore in the stock. Punj Llyod, which gained 27.10 per cent during the month was the third-most-bought stock. Shriram Transport Finance, Unitech and Jai Prakash Associates, all saw purchases of more than Rs 100 crore by the mutual funds.

(Also see: Funds' Top 10 Buys)

But, it must be remembered that the mutual fund industry as a whole still managed to sit on its huge cash holdings rather than invest it. By end April, open-ended equity funds had an uninvested stash of Rs 14,000 crore, which was similar to the sum held in March. Fund managers are still not trusting the rally, or are thinking that it has bypassed them and that good scrips are no longer available at low valuations. Waiting and watching, looks to represent their attitude best. However, in the same period (April, 2009), Foreign Institutional Investors pumped in a net sum of Rs 7,384 crore. On the other hand MF had a net investment of Rs 53.6 crore in April.