Fund managers add new companies to portfolios

In search of better returns, mutual funds look at lesser-known stocks

Mutual fund(MF)  managers are expanding their investment canvas by bringing more companies into their portfolios. On the back of robust inflows from domestic investors, they are trying out relatively unknown companies in order to broad-base their allocations.

With more than a fourth of equity assets finding place only in selective blue-chip stocks, it is increasingly becoming essential for fund managers to find stocks that can help them generate better returns.

Companies like Omkar Speciality Chemicals, Excel Crop Care, Automobile Corporation of India, Hatsun Agro Products, Greenlam Industries, Starlog Enterprises, Eimco Elecon, Wheels India, SMS Pharmaceuticals and Summit Securities have been picked up by top fund managers, according to a report from Edelweiss on India's mutual funds.

“Several of these companies are under-researched or not researched at all,” said the research head of a large asset management company who is not authorised to speak to the media.

Birla Sun Life Mutual Fund has added Omkar Speciality Chemicals and DQ Entertainment in its portfolio. HDFC Mutual Fund has brought in companies like Eimco Elecon, Swelect Energy Systems, Time Technoplast, Greenlam Industries and C&C Constructions. ICICI Prudential Mutual Fund, India’s largest fund house, has added Starlog Enterprises, Sarda Energy & Minerals and Nucleus Software Exports while IDFC Mutual Fund has begun investments in Nelcast and Hercules Hoists.

Reliance Mutual Fund has been active in picking unique stocks. In recent times, the fund house added stocks like Linde India, Wheels India, Pearl Global Industries, SMS Pharmaceuticals and Manugraph India, among others.

“We need more companies to invest in as the corpus of inflows is on the rise with growing awareness about mutual funds. The newcomers in our portfolio have passed the standard filters. It makes sense to invest in them early, though they will be subject to continuous reviews,” said a chief investment officer (CIO). Over the past year, fund managers are continuously hunting for new names. Recent initial public offers (IPOs) have given them opportunities to invest.

According to Mahesh Patil, co-CIO (equity) at Birla Sun Life Mutual Fund, “We are seeing the IPO market starting to open up. A lot of sectors are not represented in the market. Diagnostics, hospitals and small-bank-to-be companies are coming up with IPOs. These are probably still growth sectors and are opportunities to participate in. You will see a lot of emerging sectors coming in, and if the companies do well, the stocks tend to do much better than the broader market.”

Companies like Precision Camshafts, Equitas Holdings, Teamlease Services, Quick Heal, Ujjivan Financial and Thyrocare witnessed large interest from mutual fund houses.