Domestic fund houses bought additional shares in around 100 of BSE500 companies every quarter during the last financial year from across sectors.
The mayhem in midcaps has caused so much pain that investors across the board have turned their focus on just about 100 names in a universe of 3,000 actively-traded stocks on BSE! They are the largecaps, going by Sebi’s definition for mutual funds, which analysts say would be safest bets in a market being buffeted by deteriorating global and domestic macros.
Even among these 100, 10 stocks belonging to a range of industries from pharma to footwear, IT to metal and NBFC to chemicals seem to have become cynosures of all eyes, as mutual funds have bought them in hordes over the past few months and domestic brokerages too are gung-ho about them.
Domestic fund houses bought additional shares in around 100 of BSE500 companies every quarter during the last financial year from across sectors. Among them are 10 stocks which have seen common interest among fund managers and broking firms alike.
When fund managers went shopping last quarter, they mainly concentrated on some of the popular names, such as HDFC Bank, Kotak Mahindra BankNSE 1.64 %, Mahindra & Mahindra, MRF, ONGC and ITC, among others.
Incidentally, most brokerages have turned overweight on this same set of stocks.
Of the 97 companies in the BSE500 index, where fund managers hiked stake every quarter last year, 47 per cent delivered negative returns last year. However, select stocks like Sonata Software, Jindal Steel & Power, Bajaj Finance, Jamna Auto and Parag Milk Foods rallied over 50 per cent between June 2017 and June 2018, as per March quarter shareholding data.
Buying by this set of domestic institutional investors (DIIs) has provided a cushion to the market so far this year. Foreign institutional investors have offloaded shares worth Rs 1,297 crore till June 14, 2018, while DIIs have bought shares worth Rs 54,394 crore in the same period.
At a time when FIIs have been on a selling spree, DIIs continue to invest in the domestic equities, which has helped stabilise the market to some extent, says Himanshu Srivastava, Senior Analyst – Manager Research, Morningstar Investment Advisor.
“For FIIs, India is like any other investment destination. They continually evaluate India with other countries to understand the risk-reward profile it offers at a given time. Hence, they will not shy away from shifting to other investment destinations if they offer better prospects. As for DIIs, India is the only option they have,” he said.
Among these so-called buzzing stocks, HDFC Bank after allotment of employee stock options (ESOPs) created a 143 basis points additional limit for FIIs on the HDFC Bank counter. And then the government approved a proposal of the bank to raise an additional Rs 24,000 crore capital by selling equity to foreign investors to fund business growth.
Emkay Global Financial Services has a buy rating on HDFC Bank with a target price of Rs 2,306. The scrip was traded at Rs 2,035 on June 20.
Mahindra & Mahindra (M&M) is among the conviction buys of JM Financial. “We believe current valuations at 17.3 times FY20 PE capture the near-term risk to company’s earnings to a large extent, and looks like a convictional buy,” the brokerage said.
M&M is expected to grow faster than the industry average, driven by traction in XUV500 refresh (125 bookings per day), launch of three new UVs and offerings in gasoline powertrain. The UV segment is expected to grow 15 per cent during the year, according to JM Financial.
Market mavens are also bullish on a couple of tyre stocks this year. Fund houses have increased stakes in CEAT and TVS Srichakra to 9 per cent and 4.6 per cent at the end of March quarter from 5 per cent and 1.6 per cent in the same quarter a year ago.
Brokerage firm IIFL is bullish on CEAT with a target price of Rs 1,500. The company has planned a capex of Rs 3,500-4,000 crore over next 4-5 years. This would be front-ended in FY19-FY20. Deutsche Bank last month recommended a ‘buy’ rating on MRF with a price target of Rs 89,000.
Cigarette and tobacco majors VST Industries, ITC and Godfrey Phillips are three so-called sin stocks fund managers were bullish on last year.
Among others, Torrent Power, NTPC, Power Grid and NHPC from the power generation or distribution sector; and Torrent Pharma, Sun Pharma, Wockhardt, Aurobindo Pharma, Alembic Pharma, Cadila HealthcareNSE 0.70 % and Ajanta Pharma from the pharma space received a lot of attention from fund managers during the year gone.
Fund houses also bought shares of ONGC during the past four quarters. IIFL has a ‘buy’ on the stock with a target price of Rs 240.
Pharma stocks recently hogged limelight after Sun Pharma’s Halol facility got clearance from the US Food and Drug Administration, removing a key overhang on the stock.
Gaurav Dua, head of research at the BNP Paribas-owned Sharekhan, said a lot of negatives are now priced in. “We have upgraded Sun Pharma to buy from sell after Q4 results, as many negatives are priced in. There are still pricing pressures in the US, but the intensity of that pressure is easing. The company has a strong product pipeline,” said Dua to ET.
Emkay Global Financial Services has a ‘buy’ rating on Aurobindo Pharma with a target price of Rs 690.
Antique Stock Broking has a ‘buy’ call on Jindal Steel and Power with a target price of Rs 305. Jindal Steel & Power’s steel capacity rampup at Angul positions it well to capitalise on the growth in domestic steel demand and firm pricing scenario, the brokerage said.
Emkay Global Financial Services is also positive on NBCC with a target price of Rs 158. The scrip is hovering around Rs 85 at present. Fund houses increased their stake in NBCC to 2.10 per cent as of March 2018 from 1.7 per cent in December 2017 and 0.60 per cent in March 2017.
Among footwear companies, Bata India is one stock drawing eyeballs. Karvy Stock Broking is bullish on the stock with a target price of Rs 890. The stock has rallied over 40 per cent in last one year till June 14. Fund managers increased their holdings in the company to 17.50 per cent till the end of March quarter from 13.30 per cent in the same period last year.