Largecap stocks are trading at a trailing P/E of 27 times, suggesting that the broader largecap universe is is quite fairly valued. Even though that is the index P/E, some quality large cap stocks are trading at 75 times P/E and above. While mid cap index is valued at 24 times P/E, indicating value there, smallcaps are still trading at as high as 62 times (although down from 100 P/E at its peak).
The question is, in such a market, what are fund managers buying? That is a good question to ask because mutual fund inflows into equity schemes remain in a healthy range. Inflows into equity funds stood at Rs 6,000 crore during October, although down from Rs 6,600 crore in September, but are still significant in the overall context. SIP inflows remained strong at Rs 8,122 crore. Flush with cash, fund managers have to take advantage of dynamic situations and be nimble-footed to buy fresh positions.
Here is the list of stocks in largecaps, midcaps and smallcaps mutual fund managers bought in October 2019.
Largecap stocks are defined as the 100 biggest listed companies by market capitalization.
In October 2019, mutual funds aggressively bought stocks of ICICI Lombard General Insurance, Bharti Infratel, United Breweries, HDFC AMC, Bajaj Finserv, Ultratech Cement, Indiabulls Housing Finance, Cipla, L&T Finance Holdings and HDFC Life Insurance.
Many of you will notice that the top buys in largecaps are already trading at premium valuations (upwards of 50-75 times). Fund managers say that they are today ready to pay more as long as quality of the company is high.
In the selling list, there were big names as always. Large cap stocks, which saw selling by AMCs on a consolidated level, were Zee Entertainment, Godrej Consumer, Berger Paints, NMDC, Siemens, Pidilite Industries, Yes Bank, United Spirits, The New India Assurance and JSW Steel.
Here are details of largecap buys and sells in October 2019:
Midcaps stocks have corrected quite a bit from their January 2018 highs. In fact, fund-houses have been asking investors to reconsider midcap fund investments. Midcaps are the companies by market cap that rank from 101st to 250th.
Let us have a look at the top midcap stocks that were heavily bought by AMCs in October 2019. Midcaps including Godrej Industries, Motilal Oswal Financial Services, 3M India, Escorts, NBCC (India), Jindal Steel & Power, Adani Enterprises, The Federal Bank, Godrej Properties, and Tata Power Company saw heavy-duty buying by funds.
Turns out that many midcap stocks are on the sell-list of MFs too. Midcap stocks, which saw selling by AMCs were GMR Infrastructure, Adani Power, Castrol India, RBL Bank, Sterlite Technologies, CRISIL, PNB Housing Finance, Shriram Transport Finance, Edelweiss Financial Services, and Glenmark Pharmaceuticals. A large number of financial sector midcap stocks appear to be on the selling radar of fund managers.
Do remember that mutual funds often sell stocks when: 1) there is no more stock upside left, 2) the investment case in favour of the stock ends and 3) when there are better opportunities.
Here are details of midcap buys and sells in October 2019:
Smallcap stocks, like midcaps, have been beaten down over many months. Due to low levels of liquidity in their counters, smallcaps are generally avoided because getting in may be easy but getting out is definitely not.
Smallcap stock investments are really long-term in nature. In October 2019, mutual fund managers heavily bought smallcap stocks including Bajaj Consumer Care, J Kumar Infra, Fortis Healthcare, PVR, Can Fin Homes, CreditAccess Grameen, Avanti Feeds, CCL Products (India), Blue Dart Express and Unichem Laboratories. As is clear, funds seem to be preferring consumption-oriented smallcap businesses.
Smallcap stocks, which saw selling by AMCs were Asahi India Glass, Zensar Technologies, Rites, Ircon International, South Indian Bank, The India Cements, Ramkrishna Forgings, The Karnataka Bank, NIIT and Mahangar Gas.
Here are details of smallcap buys and sells in October 2019:
Disclaimer: Views expressed here in this article are for general information and reading purposes only. They do not constitute any guidelines or recommendations on any course of action to be followed by the reader. The views are not meant to serve as a professional guide/investment advice / intended to be an offer or solicitation for the purchase or sale of any financial product including stocks/shares.