Mutual funds lapped up financials, IT among largecaps in June; shunned state-run energy cos

Mumbai: Mutual funds mostly lapped up financials and software services stocks in June, even as they shunned energy companies within the largecap universe.

TCS was the most sought after stock among mutual funds in June, as they lapped up Rs 866 crore shares, data from Morningstar showed. This was followed by HDFC, HDFC Bank and IndusInd Bank.

“Mutual funds were underweight IT, and are coming back through select names such as TCS and the like,” said Kaustubh Belapurkar, director of fund research at Morningstar Investment Adviser India.


TCS, India’s top software services exporter, missed Street estimates on June quarter revenue, as spending in the key banking and financial services segment slowed. The company said its performance in the ongoing quarter would be key to meeting its full-year target of double-digit growth.

“Incrementally, cautious commentary led by weak BFSI (banking, financial services and insurance) outlook is a negative. Further, the current quarter will be critical with improved performance to aid double-digit growth for the year,” Reliance Securities said in a note on July 10.

“We expect the stock to remain subdued in the next quarter owing to below-par revenue performance,” Reliance Securities said.

Belapurkar said financials were a large part of the index. “There has been this thrust towards corporate banks for last 9-12 months. HDFC twins – are the quality names, and continue to see flows,” added Belpurkar.
That was a popular tone

“Financials is one-third of the index, so, even if one has a mildly positive view, you can’t but buy financials. Among the financials space, private lenders are preferred,” Dipen Sheth, head of institutional research at HDFC Securities

“Interest rates are also headed southwards, which makes a case for financials,” added Sheth.

The other banks that found their names in the top large cap buys were Kotak Mahindra Bank and Axis Bank.
The stock they sold the most was Tata Steel. They sold a collective of Rs 655 crore worth the company’s stocks.

The most-sold large cap stocks in the list included Power Grid, Oil & Natural Gas Corp, GAIL (India), Hindustan Petroleum, Coal India.

Belapurkar said energy stocks have been drags on the portfolio and mutual funds have been cutting exposure. Sheth pointed that all of these energy companies were state-owned.

“The Street is increasingly wary of a government which is not letting go the control and command approach over PSUs . The driving style is too socialist. Even if these stocks look attractive from valuation perspective, the way some of them are run is a turn off,” Sheth said.