Reliance's dream run in the market has equity mutual funds worried

Mukesh Ambani
The scorching rally in Reliance Industries Ltd.’s shares is becoming a problem for India’s equity mutual funds.

The stock has more than doubled from a March low, thanks to Chairman Mukesh Ambani’s fundraising blitz. The run up has increased the company’s weighting in the S&P BSE Sensex to 17.4 per cent, from 11 per cent at the end of 2019.

Money managers have hit a regulatory wall because of the surge. They can’t buy more of India’s most valuable company as actively-run plans aren’t allowed to own more than 10 per cent of a single stock. This means funds can’t add rising stocks, such as Reliance, and therefore risk trailing the market, said Nilesh Shah, managing director of Kotak Asset Management Co.

“Clients don’t understand this technicality so it’s hard to explain to them why a particular fund is under-performing,” said Shah, who is also chairman of the Association of Mutual Funds in India. “Funds have no option but to book profits in such cases to comply. We have asked Sebi to allow us to align our holdings with changes in the stock’s weighting.”

Listless performance has been one of the reasons behind the waning popularity of equity funds in recent months, with many individuals taking direct bets on a market that has erased a bulk of the virus-induced losses. Large-cap funds have risen 8 per cent on average over the past six months, data on Morningstar Investment Adviser’s website show. The Sensex is up 9 per cent in the same period.


Reliance’s shares rose 12 per cent to a record last week, lifting the company’s market value past the $200 billion mark, as people familiar said Amazon.com Inc. and KKR & Co. are in talks to buy stakes in its retail business.

But money managers trimmed their combined holdings in Reliance by 5 million shares worth 10.3 billion rupees in August, making it the most sold stock by value, Edelweiss Financial Services Ltd. said in a note Friday.



Dear Reader,


Business Standard has always strived hard to provide up-to-date information and commentary on developments that are of interest to you and have wider political and economic implications for the country and the world. Your encouragement and constant feedback on how to improve our offering have only made our resolve and commitment to these ideals stronger. Even during these difficult times arising out of Covid-19, we continue to remain committed to keeping you informed and updated with credible news, authoritative views and incisive commentary on topical issues of relevance.

We, however, have a request.

As we battle the economic impact of the pandemic, we need your support even more, so that we can continue to offer you more quality content. Our subscription model has seen an encouraging response from many of you, who have subscribed to our online content. More subscription to our online content can only help us achieve the goals of offering you even better and more relevant content. We believe in free, fair and credible journalism. Your support through more subscriptions can help us practise the journalism to which we are committed.

Support quality journalism and subscribe to Business Standard.

Digital Editor

Business Standard is now on Telegram.
For insightful reports and views on business, markets, politics and other issues, subscribe to our official Telegram channel