LIC, ITC to Axis Bank: Mutual funds bullish on these large-cap stocks. Should you buy any of these?
Equity mutual fund inflows fell 14% month-on-month to ₹35,943.49 crore in November. Despite this, fund houses continued adding large-cap stocks like LIC, ITC, HUL, L&T, and Axis Bank, indicating a long-term bullish outlook.
Even though inflows into equity mutual funds declined 14 per cent month-on-month to ₹35,943.49 crore in November against ₹41,886.69 crore in October, fund houses continued to add large-cap stocks such as Life Insurance Corporation of India (LIC), ITC, Hindustan Unilever (HUL), Larsen & Toubro (L&T), and Axis Bank for the third consecutive month, reflecting their long-term bullish stance on these stocks.
Mutual funds' top additions and reductions for three consecutive months
Brokerage firm Nuvama Wealth Management, in its mutual fund portfolio analysis report for the month of November, highlighted that LIC, ITC, HUL, L&T and Axis Bank were among the key additions by fund houses for three consecutive months. On the flip side, HCL Technologies, Hindustan Aeronautics, Apollo Hospitals, Solar Industries India and Cummins India were among the stocks that fund houses have been reducing for the last three consecutive months, according to Nuvama.
CRISIL, Exide, Tata Technologies, Godrej Industries and Honeywell Auto were among the mid-cap stocks that mutual funds added for the last three consecutive months, while Kaynes Tech, Suven Pharma, Endurance Tech, Gillette India and Aegis Logistics were among the key reductions, said Nuvama.
Similarly, in the small-cap segment, key additions were Galaxy Surfactants, Intellect Design, Arvind Ltd, Rashtriya Chemicals and Saregama India, while key reductions were Kirl Ferrous, Cera Sanitary, Tanla Platforms, Just Dial and Symphony, Nuvama said for three consecutive months.
Inflows to equity mutual funds declined over 14 per cent month-on-month in November due to market correction amid concerns over weak September quarter earnings, stretched valuations, foreign capital inflow amid rising dollar index and US bond yields and escalating geopolitical tensions. However, the magnitude of the fall subsided as equity benchmark Nifty 50 declined 0.30 per cent in November after an over 6 per cent fall in October. Nifty 50 is up about 2 per cent in December so far.
What mutual funds bought and sold in November
According to Nuvama, in November, mutual funds increased stakes in heavyweights like Reliance Industries, ICICI Bank, and Axis Bank. Meanwhile, mutual funds utilised the MSCI-driven liquidity at November-end to partially exit inclusion names such as HDFC Bank ( ₹11,000 crore), Voltas ( ₹1,400 crore), Oberoi Realty ( ₹1,100 crore) and Alkem ( ₹800 crore).
From the large-cap segment, Zomato, Trent, State Bank of India (SBI), Reliance Industries, and Varun Beverages saw significant buying, while HCL Technologies, HDFC Bank, Cholamandalam Investment and Finance Company, Grasim Industries and Power Finance Corporation witnessed the highest selling in November, Nuvama observed.
In the mid-cap segment, major buying was seen in KEI Industries, NMDC, Bharti Hexacom, Ashok Leyland and Suzlon Energy, while key selling was seen in Voltas, Mphasis, Cummins India, Coforge, and Persistent Systems in November. New India Assurance Company was a complete exit, said Nuvama.
In the small-cap segment, significant buying was seen in Wockhardt, MedPlus Health Services, Welspun Corp, PNB Housing, and MCX, while the highest selling was seen in BSE, CDSL, Cams Services, Happiest Minds, and Sharda Cropchem. New entries included CPCL, India Cements, Optiemus Infra, and Choice International, while Globus Spirits and Gujarat Ambuja Exports were complete exits, according to Nuvama.
According to the brokerage firm, mutual funds deployed the most in the primary market in Zomato's QIP ( ₹5,600 crore), followed by Swiggy's IPOs ( ₹5,300 crore) and NTPC Green's ( ₹4,000 crore).
What should you buy?
Among the five stocks - LIC, ITC, HUL, L&T and Axis Bank- that fund houses have been bullish on for the last three consecutive months till November, experts find some of them still buy-worthy at the current juncture.
Vikas Jain, the head of research at Reliance Securities, observed that these stocks had witnessed some correction in the range of 10-18 per cent over the past few months and now are trading at long-term averages in terms of valuations and earnings growth, remain promising over the next few years.
"We believe it gives a good opportunity to add these names and expect 15-18 per cent returns over the next one year. The consumer sector is at the receiving end with respect to slower rural growth, but as the economy expands, improvement in earnings will improve the volume and value growth for these companies and current pessimism in the sectors offers better risk-reward," said Jain.
According to Mahesh M Ojha, AVP of research at Hensex Securities, in the current market scenario, the infrastructure story is working, and hence, his preferred stock is L&T out of these five mutual funds' favourite large-cap stocks. Besides this, he said one can look at Axis Bank shares.
Manish Chowdhury, the head of research and StoxBox, underscored the additions of stocks such as ITC, Hindustan Unilever, LIC, L&T and Axis Bank by mutual funds indicate their preference towards large cap space in the current uncertain environment both in terms of geopolitical risks and global monetary policy trajectory.
"With domestic corporate earnings and the economy showing some signs of fatigue, our sense is that large-cap stocks offer a higher margin safety in the current context. Moreover, we believe that large-cap stocks offer a more favourable risk-reward due to the relative large-cap valuation comfort vis-à-vis small and mid-cap space and uncertainty around the geopolitical positioning post the Trump administration taking control," said Chowdhury.
"Given the strong fundamentals, the recent underperformance by HUL, ITC, LIC and Axis Bank offers a compelling buying opportunity in these stocks," Chowdhury said.
Sumeet Bagadia, executive director at Choice Broking, is positive about the Axis Bank stock.
"On the technical chart, all five large-cap shares are in a downtrend, but Axis Bank is showcasing a possible rebound in the near term. So, Axis Bank shares look most suitable for a short-term investor who wants to bet on either of the five mutual funds' favourite large-cap stocks. One can maintain a buy-on-dips strategy for Axis Bank for the short-term target of ₹1,200, maintaining a strict stop loss at ₹1,110," said Bagadia.
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Disclaimer: The views and recommendations above are those of individual analysts, experts, and brokerage firms, not Mint. We advise investors to consult certified experts before making any investment decisions.
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