Top 5 smallcap stocks with highest mutual fund holding

When large institutional investors, such as mutual funds, pension funds, or hedge funds, hold substantial portions of a company's stock, it often signals confidence in the company's stability and growth potential.

These investors conduct thorough research and analysis before making large investments, indicating strong fundamentals or promising growth prospects.

Additionally, significant institutional holdings can attract more attention to the stock, potentially leading to increased market liquidity and investor interest.

Recognising this, we can gain valuable insights by examining small-cap stocks in the Indian market with up to 40% mutual fund holdings.

Let's look at some of the top companies.

#1 Kalpataru Projects International

As of June 2024, the company has 42.58% of its stake owned by mutual funds.

The company has diversified Engineering Procurement and Construction (EPC) business interests in industries such as transmission and distribution, oil & gas, railways, buildings & factories, water pipelines, etc.

It is one of the top three players in the domestic Transmission, Distribution, and Infrastructure (TDI) sector. It has a footprint across 70 countries with ongoing projects across 30+ countries across America, Africa, Europe, the Middle East, and Asia Pacific.

For FY24, Kalpataru Projects International Ltd achieved its highest-ever consolidated revenue of ₹196.3 billion and an operating profit of ₹16.3 billion. The net income for the year grew by 18.6% YoY.

In FY24, the revenue distribution by segment was as follows: transmission and distribution (T&D): 39.9%); buildings and factories (B&F): 24.41%; water: 17.89%); railways: 7.26%, oil & gas: 4.19%: urban infrastructure: 3.59%; and others: 2.78%.

The order book inflows during FY24 were: T&D at 37%), oil & gas 27%, B&F 22%, urban infrastructure 6%, water 5%, and railways 3%. Domestic orders accounted for 52%, while international orders comprised 48%.

The T&D segment's outlook has significantly improved over the last 12 to 15 months due to the increasing adoption of renewables and the rising power demand. This has driven the development and upgrading of grid infrastructure globally.

The visibility of tenders in the domestic T&D market is estimated to be around ₹500 billion (bn) annually for the next 2 to 3 years.

The company’s total order book as of May 2024 stands at approximately ₹584.1 bn, with the T&D segment constituting around 35% and the B&F segment around 19%.

Additionally, B&F business is also expected to maintain double-digit growth, supported by a healthy order book and excellent business visibility in residential and commercial buildings, airports, industrial plants, and data centers.

Moreover, the company has secured a Letter of Intent (LOI) for a large gas pipeline order in the Middle East.

It aims for revenue growth of more than 20%, with pre-tax profit (PBT) margins closer to 5%.

#2 Gateway Distriparks

Gateway Distriparks, an integrated inter-modal logistics service provider, has 41.4% of its stake owned by mutual funds, as of June 2024.

The company offers general & bonded warehousing, rail & road transportation, container handling services and other value-added services.

Coming to its financials, in FY24, the company saw a revenue growth of 7.2% while the net income was up by 4%.

During the year FY24, the company saw a dip in rail throughput due to the Red Sea crisis leading to increased freight rates and a decrease in low-value commodities bookings.

The management believes that the worst impact has passed, but still some lingering effects in Q1 are expected.

The company is actively seeking new locations for Inland Container Depots (ICDs) but is encountering difficulties in finding sites that meet specific criteria.

The delays in finalising new ICD locations are due to availability issues and specific site requirements.

Additionally, the company plans to build two new terminals, although the timeline for these projects has not yet been finalised.

For the upcoming year, the general maintenance capital expenditure is expected to be around ₹200 m.

Looking ahead, Gateway Distriparks is optimistic about future growth, anticipating double-digit growth in the rail business. The company aims to capitalise on market shifts and operational improvements to drive this growth.

#3 Equitas Small Finance Bank

The company has 38.4% of its stake owned by mutual funds, as of June 2024.

Equitas Small Finance Bank Ltd, before acquiring small bank license, operated as a wholly owned subsidiary of Equitas Holding Ltd.

The holding entity started its operations in 2007 in the microfinance segment & diversified into vehicle & housing finance in 2011.

Also entered SME & LAP in 2013. It merged with the other two subsidiaries named Equitas Microfinance Ltd & Equitas Housing Finance Ltd & formed a bank.

After receiving a license in Sept 2016, the company commenced operations under Equitas Small Finance Bank.

Coming to its financials, in FY24, the company’s top line has grown by 32% YoY. While the net income for the year has seen a growth of 39.2%.

The net interest margin for the year saw a slight decline to 8.4% from 9%, while the cost to asset ratio for the year stood at 6.1%.

Equitas Small Finance Bank is looking to reduce the unsecured book mix to ensure it does not exceed 20% of advances.

The bank is exploring opportunities in the micro-LAP product to offer secure lending options to customers.

Additionally, it is planning to introduce personal loans and credit cards to foster deeper customer relationships.

It expects to maintain stable Net Interest Margins in the short term, despite a slight increase in the cost of funds.

The bank is targeting loan growth of around 25%, with a focus on higher-yielding products. It is also working towards maintaining a stable cost-to-income ratio, aiming to keep it within the range of 60% to 63%.

Additionally, the bank anticipates a credit cost of around 1.25% on gross advances and aims to improve Return on Assets (ROA) over time.

#4 Coforge

Coforge, an IT services company providing end-to-end software solutions and services, has 34.9% of its stake owned by mutual funds, as of June 2024.

It is among the top 20 Indian software exporters. Prominent global customers include British Airways, the ING group, SEI Investments, Sabre, and SITA.

Over the years, Coforge has set up subsidiaries in the US, Singapore, Australia, UK, Germany and Thailand, mainly to market and mobilise projects for the software division.

The company has business partnerships with large IT companies across the world.

Coming to its financials, Coforge’s revenue has grown by 14.5% YoY, with organic revenue growth of 13.3% in constant currency terms. Net income has increased by 12.2%.

Coforge has experienced growth across all industry verticals, with the BFS (Banking and Financial Services) vertical leading at 17.1% YoY growth. The insurance vertical grew by 9.6% and the travel vertical by 4.9%.

The company has renewed a 10-year contract in the banking and financial services sector and has seen significant activity in the insurance sector, signing multiple deals.

Coforge's public sector business in the UK is growing rapidly, with key deals won. Additionally, Coforge has introduced Gen AI Solutions to transform various sectors.

Coforge is expecting a 0.5% expansion in both gross margin and adjusted EBITDA margin in FY25. A structural tailwind in margins is anticipated in FY26 due to the impact of ESOP costs.

On the organic growth front, Coforge's order executable movement is closely correlated with realised revenue growth.

The company has high confidence in delivering robust organic growth in FY25, driven by strong order intake and numerous pipeline opportunities.

#5 Multi Commodity Exchange (MCX)

The company has 34.9% of its stake owned by mutual funds, as of June 2024.

Multi Commodity Exchange (MCX) is largest commodity futures exchange in India.

With a monopoly position in bullion metals, base metals, and crude oil trading in India, it has a market share of over 95% in commodity futures.

MCX facilitates the online trading of commodity derivative transactions.

Coming to its financials, in FY24, the sales have grown by 33.11%, the revenue growth was driven by a sharp increase in gold futures volumes in April, which led to higher turnover.

The introduction of mini-contracts and opportunities for arbitrage have contributed to the growth in volumes. The net income has declined by 44.3% YoY.

Going ahead, the management is optimistic about the company's growth potential in the commodity markets.

They believe there is significant room for development and growth in the industry.

Conclusion

When large institutional investors hold substantial portions of a company's stock, it often indicates confidence in the company's stability and growth potential.

These investors conduct extensive research, suggesting strong fundamentals or promising prospects.

However, understanding the reasons behind these holdings—such as financial health, strategic moves, or industry trends is crucial.

Significant institutional holdings can also lead to volatility if large-scale selling occurs.

As we explore small-cap stocks in the Indian market with high mutual fund holdings, investors should exercise caution and perform thorough due diligence before making any investment decisions.

Happy Investing!

Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such.

This article is syndicated from Equitymaster.com