Auto gains, IT slips in equity MFs' allocations

Money managers have turned cautious towards technology space due to muted guidance

The Rs 5-lakh crore equity mutual fund (MF) industry has raised its bets on the automobile sector, while information technology (IT) stocks seem to be losing some favour. Auto and auto ancillaries are the second-biggest bets for IT companies with double-digit allocation of their total equity assets under management (AUM). 

Banking continues to remain the most-preferred sector with fund managers increasing their exposure to nearly 21 per cent from around 20 per cent at the start of last year.

Technology stocks have slipped in ranking with equity funds now allotting only 8.6 per cent of their AUM compared to around 9.8 per cent last year.

Although auto companies have been hit due to cash crunch created by demonetisation, fund managers and analysts expect auto-related stocks to perform well in 2017 as they see them benefitting from a fall in consumer interest rates. 

“We are positive on auto as seven-year low consumer interest rates will benefit the sector,” say analysts at Deutsche Bank, which has automobiles as one of its most overweight sectors. Maruti Suzuki, Tata Motors, Hero MotoCorp and TVS are the most-preferred auto bets for MFs.

Meanwhile, money managers have turned cautious towards the technology space due to muted guidance for the year. It is worth mentioning that in the recent past, the IT sector enjoyed allocation of nearly 15 per cent of the AUM.

However, some believe the downside for IT stocks could be limited as they could stand to benefit from a rebound in global growth, particularly in the US and strengthening of the dollar. 

Meanwhile, the exposure to outperforming sectors such as energy and cements has remained largely unchanged. The BSE Oil and Gas index has rallied around 27 per cent in the past one year because of a spike in global oil prices.

Similarly, pharmaceutical stocks failed to cut much ice among fund managers amid regulatory hurdles in the form of observations from the US FDA. 

For years now, banks continue to enjoy the backing of fund managers. The total investments in banks increased to Rs 1.06 lakh crore in December 2016 against Rs 85,000 crore a year ago. Private banks and a few public sector banks were on fund managers’ radars. SBI, IndusInd Bank, Bank of Baroda, ICICI Bank and Kotak Mahindra Bank were the main buying targets throughout the year.

Fast moving and consumers goods (FMCG) too has seen a rise in allocations after nearly two years. However, it remains to be seen how fund managers play this sector given the negative impact of demonetisation.

In a recent note, Motilal Oswal said demonetisation will be a drag on the earnings of the FMCG sector. It says companies in the sector will see a decline in the top line which will impact margins.