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Exit Sikka: Which funds will suffer the most

7 out of 10 open ended funds hold Infosys stock and many keep a significant chunk of their corpus in it. Here's the damage.

The sudden and shocking resignation of Vishal Sikka as Infosys CEO has cast a looming shadow over mutual funds' huge bet on India's most recognizable IT services company. Shares of the cash-rich company on Friday plunged nearly 10 percent to close near 52 week low levels, eroding about Rs 2,000 crore of MF investor money. The immediate impact and road ahead for Infosys shares will be felt in a bevy of mutual funds as data shows over 70% of all open-ended equity MF schemes hold stocks of this technology titan.

Vishal Sikka on Friday morning triggered panic on markets as the chief executive, brought in to turn around Infosys three years ago, resigned suddenly. He blamed a "continuous drumbeat of distractions" and a long-running row with Infosys founders including N R N Murthy over the bell-wether tech firm's strategy. Shares fell more than 13 percent to a three-year low of Rs 884.20, before closing a tad better.

The acrimonious turn of events mean that small as well as large shareholders of Infosys are in a fix. Across MF universe, there are 416 schemes that hold Infosys. However, some of these are close-ended in nature. Since funds are close ended, investors cannot take any action. In the open-ended equity MF universe, Infosys is a substantial bet. According to Value Research data, as many as 393 schemes out of 528 open ended equity MFs hold shares of Infosys. This means roughly 7 out 10 funds have Infosys shares.

The top 10 biggest allocations to Infosys shares (at the end of July 2017) were in SBI ETF Nifty 50, HDFC Equity Fund, Aditya Birla Sun Life Frontline Equity Fund, ICICI Prudential Value Discovery Fund, HDFC Top 200 Fund, SBI Bluechip Fund, ICICI Prudential Focused Bluechip Equity Fund, Kotak Select Focus Fund Regular Plan, Franklin India Prima Plus Fund and Reliance Equity Opportunities Fund. However, investors should look at how important Infosys is for the respective fund by looking at the % net assets Infosys accounts for the fund.

For intance, the Rs 20,000 crore monster HDFC Equity Fund, Infosys accounts for as much as 6.4% as net assets. The Rs 22,000 crore SBI ETF Nifty 50 fund is also a big fund where Infosys has a single-stock weightage of 5.3%. In case of the popular multi-cap ICICI Prudential Value Discovery Fund, Infosys accounts for nearly 5% of weightage. Well-known funds like HDFC Top 200 Fund, SBI ETF Sensex, Franklin India Bluechip Equity Fund have between 5% and 6.5% weightage when it comes to Infosys.

Among big funds (those with Rs 10,000 crore in total assets), there are a few who will likely get the least hit. For instance, Kotak Select Focus Fund has less than 2% weightage given to Infosys.

Infosys forms over 9% of assets for Reliance Vision Fund. In case of UTI Dividend Yield Fund, Infosys has a weightage of 8.2%. Since Infosys is also a big allocation for these funds in terms of % net assets, the impact of Infosys share price movement will be deeply felt in them unless funds have already pared expsoure. All eyes will likely be on the Infosys buyback price, a decision with respect to which is likely to be announced on Saturday or next week.

Top 20 funds with the largest Infosys allocation

Scheme NameCategoryValue (Rs Cr)Net Asset (%)
Reliance VisionLarge Cap313.989.28
UTI Dividend YieldMulti Cap226.618.23
SBI ETF SensexLarge Cap447.446.53
UTI MastershareLarge Cap289.416.53
Reliance Tax SaverTax Planning582.456.46
HDFC EquityMulti Cap1305.026.41
UTI OpportunitiesLarge Cap257.616.06
Reliance Top 200Large Cap222.465.36
UTI Nifty ETFLarge Cap188.125.33
SBI ETF Nifty 50Large Cap1177.675.3
UTI EquityLarge Cap270.455.09
HDFC Top 200 FundLarge Cap779.75.08
ICICI Pru Value DiscoveryMulti Cap869.594.95
Franklin India BluechipLarge Cap379.24.23
Aditya Birla SL Frontline EquityLarge Cap721.73.84
Franklin India Prima PlusMulti Cap441.893.82
Reliance Equity OpportunitiesMulti Cap384.263.82
ICICI Pru Focused Bluechip EquityLarge Cap478.983.35
SBI Bluechip FundLarge Cap452.282.97
Kotak Select Focus FundMulti Cap212.351.66

In terms of purely net assets %, Infosys has a lot of weight in thematic funds like tech sector funds. The tech funds are SBI IT Fund, Aditya Birla Sun Life New Millennium Fund, Tata Digital India Fund, ICICI Prudential Technology Fund, and Franklin India Technology Fund. These funds have between 16% to 36% exposure to Infosys stocks. Till the time a new CEO is appointed at Infosys, its quite likely that Infosys shares will stay volatile, influencing the net asset value of these tech funds.

Thematic funds are quite high risk as we have been saying all along. Since they bet on a specific sector, these funds' universe is quite limited and so have very high exposure to certain amount of stocks only. In July 2017 end, DSP BlackRock Technology.com Fund was merged with DSP BlackRock Opportunities Fund, citing that the current state of the technology sector "restricts" the investment universe to just legacy technology companies.

Top tech funds with highest Infosys allocation

Scheme NameNet Asset (%)
SBI IT35.59
Aditya Birla SL New Millennium30.99
Tata Digital India25.49
ICICI Pru Technology 23.54
Franklin India Technology16.3
# Data at the end of July-2017