A sharp fall in the share price of the stocks preferred most by mutual funds has begun to hurt the performance of equity schemes.
The top-10 counters in fund managers' portfolio are HDFC Bank, Infosys, ICICI Bank, Larsen & Toubro (L&T), Axis Bank, State Bank of India (SBI), Maruti Suzuki, Reliance Industries (RIL), IndusInd Bank and Sun Pharmaceutical. On an average, these stocks have seen value erosion of nearly 10 per cent so far this calendar year.
This has impacted the net asset value (NAV) of equity schemes. Nearly a fourth of all equity assets under management (AUM) are in the top 10 stocks.
The benchmark indices are down around eight per cent since January 1. Barring information technology giant Infosys, up about three per cent, none of the counters is in positive territory in the year-to-date (YTD) term.
Rather, some of the top holdings have seen deeper cuts, over 20 per cent. For instance, the stock price of India's largest lender, SBI, has taken a hit of 21.6 per cent. Maruti Suzuki, the largest car maker, is next with a loss of about 16 per cent. ICICI Bank and L&T have each lost 13 per cent.
HDFC Bank, the most preferred pick and considered a face saver for a portfolio, has lost 5.5 per cent on the stock exchanges. A little over 300 equity schemes of the MF sector have investment in the stock, the overall exposure being Rs 19,134 crore or 5.5 per cent of total equity AUM.
Many of these counters saw fund managers stepping up fresh buying in the recent past, unaware of what was to come. L&T, down 13 per cent YTD, was the most sought stocks last month, with fund managers pumping Rs 744 crore in it. They also put Rs 545 crore in stocks of HDFC Bank. Sun Pharma, RIL and Axis saw fresh buying of Rs 411 crore, Rs 223 crore and Rs 122 crore, respectively.
This has not only put fund managers in a fix but severely impacted the unit value, with sharp erosion in investor wealth. There is an average fall of 8.9 per cent in the NAV of all equity schemes (excluding sector funds) of the top 15 fund houses, shows data from Value Research Online.
Fund managers say the 10 most invested companies are also top companies in their respective sector. Hence, MFs are bound to have high exposure to these.
"Our sole purpose is to beat the benchmark in relative terms. Looking at the weightage of the heavy counters in (these) indices, I think fund managers are not taking undue risks. More, counters like these still continue to be the safest bets, despite the recent corrections. I am still a buyer of these top names," said an equity head of a mid-size fund house, overweight on private sector banks.
So far, since inflow from retail investors has remained robust, fund managers do not have a shortage of money. However, if the situation changes and money flows slacken, they might have to change their investment style.
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