Mutual funds diversify stocks amid inflows

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Money managers are on the hunt for newer stocks, amid sharp and consistent inflows into equity schemes. Equity mutual funds (MFs) have added close to three dozen new companies to their portfolio. This is besides the new listings through initial public offerings (IPO), where, too, they have invested heavily.

 

Industry players say fund managers are increasingly researching newer stocks, beyond their traditional investment universe.

 

Some of the stocks to feature for the first time in equity MF portfolios are Sunteck Realty, DFM Foods, Lux Industries, Gufic Biosciences, Arrow Greentech, Steel Strips Wheels and Pokarna.

 

In most cases, these stocks have seen participation from a single fund house. Also, the investment corpus isn’t very high, to avoid any unseen risk attached to these companies.

 

A Balasubramanian, chief executive officer (CEO) of Aditya Birla Sun Life Mutual Fund, said, “As the market of mutual funds becomes bigger, there is requirement for more stocks to be brought in the investment universe. This is happening and in recent years as inflows rose significantly and markets surged, researching new companies has picked up. As a fund house, we have expanded our research desk, which helps the fund manager with newer investable stocks.”

 

Fund managers agree with Balasubramanian. A top chief investment officer (CIO) says beating benchmarks is becoming challenging and everyone is in search of hidden gems.

 

“As a fund manager, my goal is to offer investors better returns than the benchmarks. New entries in the portfolio are being keenly watched. We hope they will help us create the alpha going forward,” he said.

 

Currently, the majority of the fund houses have a universe of 200-250 stocks. They are in the process of nearly doubling the universe in the coming years, which they feel is the need of the hour.

 

It is to be highlighted that just 20 stocks account for more than a third of the equity assets as of now. Some of the top stocks are so burdened that as high as over 200 schemes have allocated funds in those stocks. These counters include HDFC Bank, ICICI Bank, Infosys, SBI and Larsen & Toubro.

 

In the first eight months of 2017, the equity segment has seen net inflows of more than Rs 80,000 crore. Since all the incremental sum is not being deployed with the same pace, fund managers have built up a huge cash pile of more than Rs 40,000 crore. Though it is not yet alarming as cash makes up around five-six per cent of the total equity assets, fund managers have realised that sitting on cash may not be a solution in the long run for the return-hungry investors. Ultimately, this cash has to go into stocks. Meanwhile, several of the recent initial public offerings, too, have seen heavy participation from MFs. In fact, on several occasions, the institutional allocations have mostly been cornered by fund houses. This also is part of the strategy to find newer stocks to deploy their rising cash, say industry players.