As India revives from the pandemic, the economy could witness several mega-trend tailwinds that offer unprecedented growth opportunities. The solid blue-chip stocks will be the frontrunners taking advantage of these opportunities
Equity mutual funds witnessed the third consecutive month of inflows in May, with net inflows of Rs100.8 billion.
Assets under management (AUM) of the mutual fund industry rose to an all-time high of Rs33 trillion as of end of May from ₹32.38 trillion in April-end.
Let’s have a look at the top stocks which mutual funds can’t get enough of.
#1 ICICI Bank
Of late, ICICI Bank is the top pick for mutual funds.
Among the top equity mutual funds as per their AUM, ICICI Bank is present in almost all funds’ top 10 holdings by value.
The top three mutual funds SBI MF, ICICI Prudential MF and HDFC MF have ICICI Bank in their top three holdings by value.
ICICI Bank has added weight to its balance sheet by raising capital during the pandemic with robust performance in the recent quarter.
This is combined with improved asset quality.
ICICI Bank had reported a three-fold jump in its net profit to Rs44 billion for the January-March quarter. Its covid-19 provisions at the end of the quarter stood at Rs74.8 billion. Provisions of Rs10 billion were added in the fourth quarter.
Gross non-performing assets (NPAs), as a percentage of total loans, also came down to 4.96% from 5.42% in the December quarter.
Shares of the private lender are also in focus recently after S&P Global Ratings revised the rating outlook to stable from negative. This was done on grounds that the lender will benefit from the sale of stake in subsidiaries.
On top of all this, the bank has turned out to be the market leader in terms of acquiring credit card customers this year. The bank added over 8.15 lakh new credit card customers between January and April.
#2 HDFC Bank
Following ICICI Bank, we have India’s largest private lender HDFC Bank. The lender is is also present in the top five holdings by value of top mutual funds, much like its peer.
The private bank recently informed that it reported the lowest fail rate for Unified Payments Interface (UPI) transactions processed in May with a technical decline rate of just 0.06%.
Bluechip stocks like HDFC Bank tend to perform well even when there’s panic selling.
According to Tanushree Banerjee, Co-head of Research at Equitymaster, as India revives from the pandemic, the economy could witness several mega-trend tailwinds that offer unprecedented growth opportunities. The solid blue-chip stocks will be the frontrunners taking advantage of these opportunities. They could, in fact, consolidate their share in the sector and use their disruptive capabilities to lay new foundations of growth.
Mutual funds also tend to buy stocks which pay consistent dividend.
HDFC Bank last week said its board has declared a dividend of Rs6.50 per share for the year ended March 2021.
#3 Reliance Industries
Reliance Industries is another such stock which is present in several mutual funds’ top 10 holdings.
However, it must be noted that the company was the top laggard for mutual fund houses in the month of March, with the value of holdings dropping by ₹30.6 bn.
But March was an exceptional month. Apart from Reliance, mutual fund houses also sold shares of HUL, Vedanta, and ITC. MFs instead deployed funds towards initial public offerings (IPO) where they collectively allocated Rs16 billion in nine names.
Reliance Industries share price is in focus lately ahead of its annual general meeting (AGM) scheduled on 24 June 2021.
Experts suggest that Reliance has a knack of keeping big announcements for the AGM. In this AGM, investors are expecting some big announcement regarding the Reliance-Saudi Aramco deal and may be an appointment of Saudi Aramco official in the Reliance Saudi Aramco joint venture.
Mutual funds held 13.24% stake in Infosys as of March 2021.
UTI MF, L&T MF, Mirae MF, IDFC MF, and ICICI Prudential fund have the top holdings by value in Infosys.
Over the years, Infosys has consistently paid dividends. It has also bought back shares in the past three years. Since its listing on 2 May 1995, at ₹0.88 per share, shares of Infosys have surged 1,704 times.
For the past few months, the IT sector has been witnessing robust demand in order inflow as pandemic accelerated the cloud and digitisation adoption across organisations.
Companies are moving their system from enterprise model to cloud along with digitisation to facilitate the hybrid work culture.
Along with Infosys, heavyweights including Wipro, TCS, among other have seen a sharp up move in their share prices.
#5 Bharti Airtel
Mutual fund holdings in Bharti Airtel stood at 12.49% at the end of March 2021 quarter.
ICICI Prudential MF and IDFC MF are the two funds which hold a prominent stake in the telecom major.
On Tuesday, Bharti Airtel announced that it has entered into a strategic partnership with Tata Group for the implementation of 5G network solutions in the country. In this collaboration, Tata Consultancy Services (TCS) will bring in its expertise in global system integration and aid in the alignment of an end-to-end solution.
Several brokerage houses have been screaming buy calls on India's second largest telecom operator for more than a year now.
At the end of March 2021, mutual fund houses held 12.61% stake in India’s largest bank.
On Tuesday, the bank received board's approval to raise additional tier-I capital of up to ₹140 bn through basel-III bonds.
To comply with Basel-III capital regulations, banks globally need to improve and strengthen their capital planning processes.
For the March quarter, SBI posted results which were better than the Street’s expectations. It reported a record profit for the quarter ended March on the back of higher net interest income and lower provisions.
Banking and financial stocks were among the most affected sectors in the Covid crash. However, they have rebounded sharply from their lows.
#7 Bajaj Finance
In the past year, shares of Bajaj Finance have doubled investors’ wealth, gaining 114% as compared to 52% gains in BSE Sensex.
The stock came under pressure this month after the company said it could see higher non-performing assets (NPAs) in the first six months of financial year 2021-22 due to covid-induced lockdowns.
Following these developments, analysts cut earnings estimates for the company which led to a 5% fall in the company’s shares on 7 June.
At the end of March 2021, mutual funds’ stake in the non-bank lender stood at 6.39%.
#8 Kotak Mahindra Bank and Axis Bank
Mutual funds also held significant stakes in Kotak Mahindra Bank and Axis Bank.
Mutual funds held 8.03% stake in Kotak Mahindra Bank with SBI MF and Axis MF holding 2.31% and 1.78% stake, respectively.
In Axis Bank, mutual funds held 17.29% stake. Franklin MF, ICICI MF, and Aditya Birla MF among others hold stakes in the private lender.
Recently, it was reported that Axis Bank is in talks with a few micro lenders including Arohan Financial Services, Satin Creditcare Network, and Spandana Sphoorty Financial as it explores possible stake buy to expand into rural India, following the footsteps of IndusInd Bank and Kotak Bank.
Shares of Spandana Sphoorty saw a spike post this news, rising as much as 30% in two days.
#9 Avenue Supermarts
In Radhakrishnan Damani backed Avenue Supermarts, out of the 25% free float shares available, mutual funds held 6.07%.
Axis Mutual Fund was the top contributor, holding 3.10% stake.
Last week on 18 June, it was reported that retail chain D-Mart operator Avenue Supermarts, and online classified company Info Edge are expected to be added to the NSE Nifty in the upcoming semi-annual review.
Note that Avenue Supermarts has surpassed bluechip stocks such as Maruti Suzuki, L&T and UltraTech Cement in terms of market capitalisation.
It’s presently ranked as the 17th most valued company in India after ITC and Axis Bank.
Of late, the company is focusing more on its ecommerce business amid the lockdown and pandemic-related curbs.
In early months of the pandemic, the company's business was hard hit as most stores were shut.
The company got listed in March 2017 and it has impressed investors since then. The stock doubled from day one itself and is up more than 1,000% since listing.
Apart from the above, here are few top stocks where mutual funds hold significant stakes.
In May, the mutual fund industry witnessed highest net inflows since March 2020, as a decline in covid cases combined with vaccination drive and prospects of an economic recovery improved investor sentiment.
Better than expected earnings also boosted optimism.
We will keep you updated on all the developments from this space.