Mutual fund managers reverse investment bets

Move comes after most MF equity schemes missing the current rally

The current rally in stock markets has forced Indian mutual fund managers to churn their investment portfolio fast. Upon finding their calls backfiring and the failure to make quick gains for investors, they chose to invest heavily again in those sectors where they had cut their exposure in August.

For instance, bank shares, where fund managers drastically cut their proportion of investments in August by over 100 basis points (one basis point is one hundredth of a percentage point), are back on their radar. Interestingly, exposure in banking shares rose 160 basis points to 19.27 per cent in September, according to the statistics released by the capital markets regulator, Securities and Exchange Board of India (Sebi).

The similar reverse calls were seen in sectors like information technology (IT), fast-moving consumer goods (FMCG) and pharmaceuticals. In all these sectors, fund managers took a call, which is contrary to what they did a month back.

The chief executive officer (CEO) of a mid-sized fund house had admitted in a conversation with Business Standard the sector missed the rally on the back of investment decisions, which did not help investors make gains out of the current rally.

“We were late and now, we are buying into bank stocks when already shares have risen,” he had said.

Banks, IT, FMCG and pharma together constitute close to 44 per cent of the industry's overall investments in equities. And wrong investment decisions in these sectors ensure poor performance of the funds. This was true in this case, too.

Business Standard had reported last week on how close to 70 per cent of the equity schemes (excluding sector funds) offered by the mutual fund industry could not beat BSE 500. In absolute terms, out of such 333 schemes, only 106 could outperform the index, while others showed a lacklustre show.

Such an underperformance came at a time when Sebi has been asking fund houses to improve their track record. On top of it, even sector executives say fund performance is the key to attract investors to mutual funds apart from brand image.

Barring the top four favourite sectors of fund managers, auto shares witnessed a rise of 22 basis points in investment exposure, while cement, construction projects and industrial capital goods, too, saw positive traction in September.

In September, equity assets invested in stocks stood at Rs 200,387 crore against Rs 186,700 crore in the previous month.