MFs raise bets, foreign institutional investors trim exposure in BSE 500

The average shareholding of mutual funds (MFs) in the BSE 500 companies went up by 38 basis points (bps) during the December quarter, even as foreign institutional investors (FIIs) trimmed theirs by 16 bps, Capitaline data showed. 

In the three months to December, MFs had invested Rs 240 billion in domestic stocks, whereas FII buying was relatively muted at Rs 83 billion.

MF ownership in Indian companies has nearly doubled since 2014, thanks to huge consistent buying. FIIs, biggest non-promoter shareholders, have seen their holdings dip during the same period. Market players predict the trend to continue, as domestic financial savings could rise further and the share of equities in domestic savings could also rise on the current low base.

Retail investors’ holding in the December quarter dipped 18 bps. Experts say these investors are increasingly accessing the market through the MF route, instead of directly investing in stocks.

During the December quarter, MFs were seen betting on several mid- and small-cap stocks. Fund managers were seen preferring financial and commodity stocks. Bharat Financial, Cyient and National Aluminium Company (Nalco) saw the highest increase in MF holdings. “MFs have been lapping up several small and mid-sized stocks, despite concerns about valuations. Unlike FIIs, which deploy resources in a different country if Indian equities don’t look attractive, MFs can only invest in Indian equities. Hence, they are in constant search for good bets in the broader markets,” said a fund manager.

Bharat Financial was the top bet of MFs during the quarter, as their shareholding jumped 7.4 percentage points to 17.05 per cent. MFs also increased their stake in Cyient and Nalco by 6.8 percentage points and 5.79 percentage points, respectively. 

Indian Hotels was the top bet for FIIs, where their shareholding went up 15.07 percentage points. Bajaj Hindusthan and Delta Corp saw their FII ownership go up by 10.68 percentage points and 8.29 percentage points, respectively. 

Unichem, Castrol India and Shankara Building Materials saw the steepest fall in MF holding, while FIIs pruned their stakes in Cyient, Shilpa Medicare and Kaveri Seed.