Of equity MFs' top 10 stocks, 7 crack more than Sensex

Fund managers say the recent fall is not going to sustain. They are using the opportunity to buy shares at a discount.

Seven of top 10 (in terms of percentage of total equity assets held by mutual funds) equity holdings underperformed the BSE Sensex in August. 

Worst downwards, the seven are: Reliance Industries Limited (RIL), IndusInd Bank, Axis Bank, Larsen & Toubro (L&T), State Bank of India, ICICI Bank, and HDFC Bank.

The three that outperformed the Sensex are in ascending order: Maruti Suzuki, Infosys, and Tata Consultancy Services (TCS).

The top 10 holdings (as on July 31) of equity mutual funds account for a fourth of the funds' equity assets.

The fall in top stocks, a majority large-cap, came when funds decided to shift from mid- and small-caps to large-cap stocks.

In August, the Sensex dropped 6.5 per cent, or 2,000 points. This was lower than what stocks lost then.

For instance, RIL, the eighth-most invested stock, where 160 schemes had pumped in Rs 5,370 crore as on July 31, dived 14.5 per cent then.

Other top holdings: IndusInd Bank, Axis Bank, and L&T lost 10 to 13 per cent in August.

India's leading private lenders HDFC Bank and ICICI Bank, too, let down funds. HDFC shares were down 7.5 per cent, while ICICI Bank shares declined eight per cent in August.

Both are most sought-after, with funds' exposures at Rs 16,500 crore in HDFC and Rs 12,100 crore (Rs 121 billion) in ICICI, as on July 31. More than 220 mutual fund equity schemes have investment in these two stocks. 

Fund managers say the recent fall is not going to sustain. They are using the opportunity to buy shares at a discount.

"We cannot do away with these stocks. They are safer than other stocks. I agree they have got badly hit, but I do not see any reason to bring any major change in the top holdings," said an equity head of a fund house.

He added that a fall of eight to 15 per cent may turn out a one-time opportunity in several months to buy more stocks.

Positive returns could come from information technology stocks. Infosys, the third-most invested stock by funds, returned 1.6 per cent. TCS returned 2.2 per cent.

As on July 31, the funds' equity assets were a little less than Rs 4 lakh crore. The top-10 holdings accounted for about Rs 90,000 crore (Rs 900 billion).