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MUMBAI : Even as consumer demand was low due to complete lockdown in most part of FY21, mutual funds (MFs) in India preferred to increase their exposure to domestic cyclicals. Typically, cyclical stocks include companies that make or sell items and services that are in demand when the economy is healthy.

In FY21, fund houses increased their exposure to domestic cyclicals by 160 basis points (bps) to 58%, led by an increase in the weightage of automobiles, non-banking financial companies (NBFCs), cement, real estate, chemicals and infrastructure, according to data sourced from the Association of Mutual Funds in India (Amfi) and NAV India analysed by Motilal Oswal Financial Services Ltd.

MFs increased their exposure to the auto sector to 6%, NBFCs (8.8%), cement (3.3%), real estate (0.7%), chemicals (3%), and infrastructure (0.5%) in FY21.

Though MFs have reduced their exposure to private banks, it was still the top sector to receive the highest allocation of mutual fund money in FY21. Fund houses had a sectoral exposure to private banks at 17.7% in FY21 compared to 18.1% in the year-ago period.

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The technology sector saw a massive rise in weightage in FY21 to 11.9%, increasing by 300bps against the previous year. “The sector is now second in terms of sectoral allocation by MFs. It was in the third position 12 months ago," said Deven Mistry, analyst, Motilal Oswal Financial Services.

In terms of value increase in March, three of the top five stocks belonged to technology: Infosys (up 7,000 crore), Tata Consultancy Services (up 3,960 crore) and HCL Tech (up 1,690 crore).

Technology saw an increase in allocation of mutual funds at a time when overall there was a net outflow of money from equity schemes. In FY21, there was a net outflow of 34,700 crore from equity MFs—the first outflow in seven years.

“Domestic investors have capitalized on the market rally to book profit and rebalance their portfolios as the market continues to achieve new highs, leading to moderation in domestic mutual fund flows. The year saw a decline in sales of equity schemes (down 7% year-on-year, or y-o-y, to 2,30,600 crore). The pace of redemptions picked up to 2,65,300 crore (up 64% y-o-y)," Mistry said.

The MF industry’s total assets under management increased 41% y-o-y to 31.4 trillion in FY21, led by an increase in equity funds, income funds and other exchange-traded funds (ETFs).

Among sectors, consumer slipped to fourth place from second spot a year ago, with a 240bps decrease in weightage to 7.4%. Metals improved its position to No. 14 from 16th spot a year ago, with the weightage increasing by 80bps to 2.6%.

In March, MFs were net buyers of 50% Nifty stocks. The highest net buying in March was in Bharat Petroleum Corp. Ltd (up 28.6%), SBI Life Insurance (up 28.3%), Tata Steel (up 9.6%), Bajaj Auto (up 8.9%) and UPL Ltd (up 8%).

March saw a frenzy of initial public offerings as fund houses collectively deployed 1,600 crore in nine issues, according to Abhilash Pagaria, analyst, Edelweiss Securities. The issues were MTAR Tech, Craftsman Automation, Nazara Technologies, Easy Trip Planners, Suryoday Small Finance Bank, Laxmi Organic, Kalyan Jewellers, Anupam Rasayan and Barbeque Nation.

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