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In last 3 months, IT firms saw demand normalize as their deal pipelines largely returned to pre-covid levels.
In last 3 months, IT firms saw demand normalize as their deal pipelines largely returned to pre-covid levels.

Mutual funds increase exposure to IT stocks

  • In September, MFs increased their exposure to IT stocks to an all-time high of 11.6%

An increased focus on technology spend by companies amid the covid-19 crisis, backed by a robust deal pipeline, has prompted investors to pile into such stocks. In September, mutual fund houses increased their exposure to technology stocks to an all-time high of 11.6%.

Equity funds’ weightage to information technology (IT) stocks rose 140 basis points (bps) from the previous month, and 290bps year-on-year, shows data for India’s top 20 domestic mutual fund houses, which account for around 97% of the market share in terms of assets under management (AUM).

During the month, mutual funds’ exposure to healthcare increased to a 55-month high of 8.7%, up 70bps month-on-month, and 340bps compared to a year earlier, shows data sourced from the Association of Mutual Funds in India, or AMFI, and NAV India, and analysed by Motilal Oswal Financial Services Ltd.

“In September, five out of 10 stocks that saw maximum increase in value were technology stocks. Reliance Industries, Infosys, TCS, HCL Tech, Dr Reddy’s Labs, Tech Mahindra, Wipro, Cipla, Ipca Labs and Maruti Suzuki saw maximum increase in value month-on-month," said Deven Mistry, research analyst, Motilal Oswal Financial Services.

Analysts said management commentaries corroborate an encouraging outlook for Indian IT companies. In the last three months, IT companies saw demand normalize as their deal pipelines largely returned to pre-covid levels, with discussions being revived for deferred deals as well.

“Recovery during September was entirely driven by managed services. Within this, as we anticipated, the rebound was led by a strong comeback in BFSI across verticals. Increased activity in mega deals, contract restructuring and industry-specific BPO also aided the recovery," said analysts from ICICI Securities, seeking anonymity. BFSI is banking, financial services and insurance sector.

Overall, mutual funds were net buyers for 44% of Nifty stocks. However, mutual funds cut their exposure to private banks with their weightage slipping to a 29-month low to 15.8% in September, down 150bps compared to the previous month, and a huge 500bps year-on-year fall.

According to data released by AMFI on Thursday, net outflows from equity schemes stood at 1,009.01 crore in September, significantly lower than the 4,028.83 crore and 3,845.41 crore in August and July, respectively.

Edelweiss Alternative Research and ACE MF data shows that mutual funds actively participated in IPOs which were launched in September, including the share sale of Happiest Minds, CAMS, Route Mobile, Chemcon Speciality, Angel Broking and UTI AMC.

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