Mumbai: Indian equity funds reduced auto sector investments in June and are likely to cut exposure further over the next three months, as auto companies face slowing sales and high costs, a Reuters poll showed.
The Reuters India Asset Allocation Poll of 11 fund houses, conducted between 18-21 June, also showed engineering stocks cemented their position as top picks of fund managers, many more of whom also bought technology stocks despite the rising rupee.
Auto stocks accounted for 4.7% of diversified equity portfolios in June compared with 7.01% in May and nearly a fifth of the respondents plan to reduce allocation to the sector in the next three months, the poll showed. This is in line with the finding of a similar poll in May.
“This space is out of our radar as of now,” Prateek Agrawal, head of equities of ABN AMRO Asset Management said. High interest rates had led to a slowdown in vehicle sales, he said.
Agrawal, who has avoided auto stocks for the last three months, said auto companies had not been able to pass on input cost increases.
India’s top three motorcycle makers — Hero Honda Motors Ltd, Bajaj Auto Ltd and TVS Motor Co. respectively — and top truck maker Tata Motors Ltd reported lower sales in May compared with a year earlier.
Agrawal said the quarterly results of auto companies might come under pressure. “Already there are indications the numbers will not be as good as the same quarter last year because advance taxes for some of these companies have been lower”.
The BSE Auto index has fallen nearly 13% so far in 2007.
Engineering rules, tech swings
Equity funds’ exposure to engineering stocks rose to 16.09% in June from 13.18% in May and 45% of the respondents plan further investment, the poll showed. This is in line with the May poll findings.
“This sector has a good visibility for at least next two to three years,” said Sanjay Dongre, a UTI Mutual Fund manager.
Order book positions of engineering companies were up and seeing robust growth, he said.
The BSE capital goods index has risen nearly 29% so far in 2007.
Though funds cut exposure to technology stocks in May on concerns the appreciating rupee would hit earnings, technology was back in favour in June, forming 11.51% of portfolios compared with 9.49% in May.
“Fund managers probably don’t see any significant downside of dollar from here on,” Sanjay Sinha, chief investment officer, SBI Funds Management said. “This may have made fund portfolios to be a little bit more overweight on IT”. The rupee has risen about 8.5% against the dollar this year but has been steady so far in June.
India’s top software exporter Tata Consultancy Services Ltd however said on 22 June it saw the rupee rising further in the short term due to huge inflows into the market.
The poll showed 36.36% of the respondents were likely to reduce their exposure to the tech sector in three months, while a similar number would remain neutral.
Balanced funds did not see much change in the portfolio allocation towards equities, bonds and cash, but a third of the respondents said they would increase their exposure to equities in three months.
The cash component of bond fund portfolios fell in June compared to May and half the respondents said they would cut it further in the next three months.