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Defensive Discards

Funds are shedding defensive stocks in favour of volatile ones, signalling their faith in the bull run

Mutual funds have shed the 2008-inspired crash fears and proof thereof is the selling pressure they have maintained in safe stocks while opting to buy into the more volatile scrips, thereby signalling risk is not that relevant at the moment. Instead, they are charging after some quick profits.

We take a look at the top five holdings of mutual funds and chart how the shift has happened over a period stretching from February to July.

The ‘Sold-Off’

When the market crash happened in 2008, funds were forced to take refuge in defensive sectors like fast moving consumer goods (FMCG) and Healthcare. These stocks almost never fall or rise in a major manner and are seen as the best option when markets dive. But now, as the markets have risen tremendously over the last five months, fund managers are looking to shed them and move into stocks that may be more volatile, but which are leaping on the stock markets.

This can be validated from one of the most-popular stocks that funds had lapped up at one point – ITC. The stock was in the top 5 holdings of mutual funds in the open-end equity diversified category, but has lost its charm with the number of funds invested in it coming down from 54 to 28. In other words, now just 28 funds have ITC stock in their top 5 holdings.

Another perennial bad-time-favourite is Hindustan Unilever, but now it has turned into a good-times-rebuff. The number of funds that had its stock in their top 5 holdings fell from 25 to a mere 5, while another FMCG biggie, Colgate-Palmolive (India) has dropped from 15 to 5.

While the FMCG sector has understandably been at the receiving end of ‘sell’ calls, in the telecom sector, Bharti Airtel too has come in for a bit of pummelling. Once it was the second-most favourite top holding, but now funds that held its stock in their top 5 holdings has dropped to 51 from the earlier 74. Telecom does not fall into the defensive sector, but the reason that there is a major selling drive on the stock is its move to effect a merger with South Africa’s MTN, a deal that it will have to sweeten further to get it signed, sealed and delivered. The Bharti stock has fallen into the 'safe' category simply because it did well during 2008, when everyone else was crashing hugely except FMCG stocks.

Some big financial sector stocks too have come in for a shake up. The State Bank of India (SBI), a PSU bank, as well as India’s largest banking entity, remained in the list of sold stocks with the number of funds that have retained it in their top 5 holding coming down from 52 to 42.

Perennial fund favourite Reliance Industries too has seen its stock fall out of favour with some funds at least. The number of funds fell from 96 to 88. However, this figure still ensures that it remains the most popular top-5 stock with funds.

The ‘Bought In’

Among the stocks that have seen an increase in the number of funds that hold them in their top 5 holdings, is ICICI Bank. In fact India’s largest private sector bank has seen a doubling of the number of funds at end of July, 50 funds from the earlier 25. Another gainer has been Larsen & Toubro, which shot up to 33 from 18.

Infotech biggie Infosys Technologies too remained a favourite in this rally, rising in the esteem of 57 funds from an earlier 46.

Certain stocks that had no presence in the top 5 holdings of funds, saw some action since February. As many as 72 funds saw it fit to make them a part of best holdings. While ABB saw a single fund invested in it, Sesa Goa touched the highest figure with funds investing in it reaching 9.

The 'Unchanged'

There were 36 companies that did not see any difference in their fund-holding structure as the numbers remained the same in this period.

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Mutual fund managers have faced a barrage of criticism over the last year or so for being in the wrong stocks at the wrong time, sitting on cash holdings, and even letting the current market rally bypass them in the initial stages, yet now, despite the trade pundits being divided on the nature of the rally as well as rising valuations, they are looking to go aggressive and recover their lost pride as well as investors’ money.

Check Out The Latest Stock Prices:
ITC, Hindustan Unilever, Colgate Palmolive (India), Marico, Nestle India, GAIL, Indian Oil Corporation, Reliance Industries, SBI,
L&T, Infosys Technologies.

Shedding Fears
     Fund Count    
Scrip    Feb-09    Jul-09    Sector
ITC Ltd.   54   28   FMCG
Bharti Airtel Ltd.   74   51   Communication
Hindustan Unilever Ltd.   25   5   FMCG
Bharat Heavy Electricals Ltd.   40   26   Engineering
Colgate-Palmolive (India) Ltd.   15   5   FMCG
State Bank of India   52   42   Financial Services
G A I L (India) Ltd.   13   4   Energy
Indian Oil Corpn. Ltd.   13   5   Energy
Reliance Industries Ltd.   96   88   Energy
Lupin Ltd.   16   9   Health Care


New-Found Favourites
     Fund Count    
Scrip    Feb-09    Jul-09    Sector
Sesa Goa Ltd.   -   9   Metals
Mahindra & Mahindra Ltd.   -   8   Automobile
Dr. Reddy's Laboratories Ltd.   -   5   Health Care
L I C Housing Finance Ltd.   -   5   Financial Services
Patni Computer Systems Ltd.   -   5   Technology
Wipro Ltd.   -   5   Technology
Mcnally Bharat Engg. Co. Ltd.   -   4   Construction
Asian Paints Ltd.   -   3   Chemicals
Kotak Mahindra Bank Ltd.   -   3   Financial Services
Mcleod Russel (India) Ltd.   -   3   FMCG