Auto stocks replace IT as second most-preferred in MFs' portfolios

Equity allocation to auto and ancillaries reaches double digit; surpasses pharma, FMCG too

India’s equity fund managers are betting big on the automobile industry. Auto stocks have now replaced information technology (IT) as fund managers' second-most preferred bet after financial stocks.

Of the total equity asset under management (AUM) of Rs 3.61 lakh crore, 10.24 per cent or Rs 37,029 crore has found its way into auto and ancillaries’ shares in recent months. With this high exposure, auto has emerged as the only sector in which fund managers have exposure in double digits after banks.

The auto sector, once, was fifth top choice after banks, IT, pharma and FMCG. However, over the last three years, the sector has continued to see unabated buying.

Mahesh Patil, co-chief investment officer (equities) at Birla Sun Life Mutual Fund, expects earnings growth in the auto sector to be at 25 per cent for the current financial year. “We believe that the four-wheeler (passenger) and commercial vehicle (CV) space will drive the growth going forward in the second half of the year. However, the two-wheeler space, due to slowdown in the rural region may see some pain.”

Fund managers, over the last few quarters have continuously buying auto stocks. Some of the top picks in their portfolios include Maruti Suzuki, Mahindra & Mahindra, Tata Motors, Hero MotoCorp, Atul Auto, Exide Industries, Amara Raja Batteries, Ceat Ltd and Bajaj Auto, among others.

Maruti Suzuki, in particular, has already made it to the top 10 picks of country's fund managers.

Software companies appear to have lost their preference among fund managers, as the sector saw equity exposure dipping to single digit at 9.43 per cent in April. The IT sector has been continuously losing ground in fund managers' portfolio. Around a year before, the exposure in software shares had even surpassed 14 per cent. However, since then the equity allocation to IT has been declining steadily.

Swati Kulkarni, EVP and fund manager at UTI Mutual Fund, says. “In the IT sector, overall, there are concerns about margin pressure on the companies.”

 

Tata Consultancy Services (TCS), India's largest software exporter, has found no place in fund managers’ top 10 picks recently. However, its peer Infosys continues to remain in top picks.

Currently, banks lead with the highest allocation of more than 20 per cent of equity assets.