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When big players such as mutual funds invest in stocks, it often acts as a safety net for investors. Fund houses typically have greater access to information regarding a company's governance and financial health. This is something usually not available to ordinary investors. Hence, when fund managers place their bets on a stock, it can be a strong indicator that a company has the potential to deliver high returns in the long run.
So, which stocks have caught the fancy of fund managers? Of the 939 companies invested by actively managed funds between September 2023 and January 2024, there were eight stocks that generated robust double-digit returns in such a quick time, had at least 1 per cent weight in a fund's portfolio and saw a significant rise in interest from fund managers during the period. IREDA was a standout; it delivered a staggering return of 254.1 per cent during this period.
The elite eight
These stocks have seen a sudden spike in interest from mutual funds
| Company | Returns (%) | No. of schemes investing in these stocks (As of Sep '23) | No. of schemes investing in these stocks (As of Jan '24) | Average allocation (%) |
|---|---|---|---|---|
| Indian Bank | 24.1 | 53 | 105 | 1.3 |
| Kaynes Technology | 20.6 | 50 | 85 | 1.1 |
| SAIL | 34 | 38 | 80 | 1.2 |
| Bank of India | 30.7 | 14 | 64 | 1.5 |
| LIC | 62.5 | 32 | 59 | 2.3 |
| Oil India | 88.4 | 30 | 57 | 1.5 |
| Sobha | 98 | 25 | 52 | 1.2 |
| IREDA | 254.1 | 0 | 38 | 1.3 |
| Note: Returns for the period October 1, 2023 to February 15, 2024 and since listing for the companies that were listed during this period. Average allocation as of January 31, 2024. All actively managed equity and hybrid funds were considered. | ||||
Was this surge driven by high returns?
If you check the table, you'd observe that these stocks did not just have a smart upswing but also caught the fancy of different mutual funds over a short span of four months.
That said, whether the increase in stock price and higher mutual fund participation is purely tactical or coincidental is something only time will tell.
Our take
While mutual funds going bullish on these stocks is a strong nudge for a retail investor, you shouldn't base your investing decisions solely on what other fund managers are buying. Also, one doesn't know the precise moment fund managers enter and exit a specific stock, making it risky for individual investors to mimic a fund's portfolio.
So, do your due diligence by understanding a company's business model and taking account of your long-term financial goals and risk appetite before deciding to invest. If you don't have the skillset, time or the risk appetite, stick to equity funds.
Also read: These two Motilal funds have braved the recent market volatility
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