January 18, 2017

Mutual funds' sectoral preferences as of Nov 2016

A story I wrote last month as a journalist in the organisation I work
for currently:

[C] ANALYSIS: Bargain buying by MFs cushions pharma, IT, auto stocks
Cogencis, Monday, Dec 26

By Rajesh Gajra
NEW DELHI - When sector indices for information technology, consumer
durables, pharmaceuticals and auto stocks fell by more than 5% each between
August and November, domestic mutual fund investors saw it as an opportunity
to invest in them.
But the rising index for the oil and gas sector in the same period didn't
evince a similar interest from mutual funds that collectively make for one of
the largest domestic institutional investors, and account for around 10% of
the free-float market capitalisation of NSE worth about 50 trln rupees.
The investing trend by India's mutual funds provided cushion to falling
sectors and prevented the runaway rise of oil and gas stocks, an analysis of
sector-wise fund holding value data from Cogencis Corporate Fundamental
Database showed.
The Nifty IT index fell 7.0% from its average closing level in August to
that in November. In the same period, mutual funds' exposure went up by 8.8%
to 353.96 bln rupees from 325.47 bln rupees.
When S&P BSE Consumer Durables index and Nifty Pharma index fell around
5.5% each in this period, mutual funds increased their exposure to the stocks
in the two indices by around 7.5% each, to 36.3 bln rupees and 286.1 bln
rupees, respectively (see table).
Mutual fund holdings in stocks of Nifty FMCG and S&P BSE Capital Goods
fell, but not as much as the index fell in value during Aug-Nov.

AUG 31-NOV 30
Sector Index    Index value     MF holding value         MF holding in Nov
                              (percentage change)                          (in bln rupees)
Nifty IT                    -4.3             8.8                                         354
Nifty Auto                -7.9             6.2                                         412
Nifty Pharma            -3.6            7.7                                         286
Nifty FMCG             -9.4            -1.6                                       211
BSE Cap Goods         -7.7           -1.3                                      324
BSE Cons. Dur.          -9.7           7.5                                         36
Nifty Bank                 -5.9            0.9                                     1003
BSE Oil & Gas           8.1             3.6                                      287

From August to November, S&P BSE Oil and Gas Index rose by nearly 10% but
mutual funds' exposure went up only by just 3.6% to 287.0 bln rupees on
account of profit booking.
The value of mutual fund holdings in stocks of Nifty Bank index rose a
nominal 0.9% in November to 1.0 trln rupees from August even though the index
fell by nearly 6%. Banks stocks accounted for 20% of mutual funds' total
equity exposure.

In the last one year, mutual funds have pared their exposure to the
realty sector. The value of their holdings in Nifty Realty stocks fell 4.3%
to 8.7 bln rupees in November from 9.1 bln a year ago, even though the index
rose by 3.2% in this period.
Exposure of mutual funds rose the highest on year in Nifty Metal stocks
to 73%, more than the 57% increase in the value of the index.
In the case of Nifty FMCG, S&P BSE Consumer Durables and Nifty Pharma
indices, the mutual fund holdings went up in value significantly even though
all the three indices recorded on-year fall (see table).
Funds are using the current slide in these indices to increase exposure
as they expect them to do well over the next 3-4 years.

NOV 30 2015-NOV 30 2016
Sector Index                 Avg index value                      MF holding
                                                    (percentage change)
Nifty IT                               -10.0                                         0.3
Nifty Pharma                        -3.6                                       28.5
BSE Cons. Dur.                    -9.5                                        36.2
BSE Cap Goods                   -3.7                                          2.5
Nifty FMCG                          1.0                                        39.9
Nifty Bank                             6.9                                        20.8
BSE Oil & Gas                    28.3                                       22.5

The analysis showed that among diversified indices, mutual funds
preferred large-cap and mid-cap stocks over small-caps.
From August to November, mutual fund holdings in Nifty 50 stocks went up
2.6%, even though the index itself lost 4.5% in value.
Nifty Mid-cap 100 Index fell by 1.0% but mutual funds' exposure increased
a little by 0.9%.
The small-cap stocks index, Nifty Small-cap 100, fell 3.1% in the same
period and mutual fund exposure also fell by 2.1%. End

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