Many large MFs reduce exposure to top 10 stocks

A sift through the portfolios of large mutual funds schemes shows that a majority of fund managers have reduced their holdings of the top ten stocks and diversified their portfolios this calendar year. Of the 45 large mutual funds schemes, or those with asset size of over Rs 1,000 crore as of end May, which had top ten stocks contributing more than 40% of their portfolio at the end of December last year, 28 have decreased the weight of top ten stocks in their portfolios since then. “In December, there was no clarity regarding the government and macro-economics of Indian markets.

This prompted fund managers to increase their exposure to companies that derived reasonably good business from overseas markets, which include IT, pharmaceuticals and auto ancillaries,” Niranjan Risbood, director-fund research at Morningstar India, said. “However, at present, fund managers still have no clarity as to in which direction the economy would move since the government is yet to take policy decisions that would have a noticeable impact on the economy. Due to this, fund managers have now further diversified their portfolios from earlier concentrated portfolios,” he added.

DSP BlackRock Small and Mid-Cap Fund, HDFC Mid-Cap Opportunities Fund, L&T Equity Fund, IDFC Sterling Equity Fund, and L&T Tax Advantage Fund are among the schemes where contribution of top 10 stocks to the portfolio has considerably fallen this year. For instance, contribution of top ten stocks in DSP BR Small- and Midcap scheme came down to 36.83% at the end of May from 47.77% at the end of December last year.
Analysts say the fall in contribution of top ten stocks to the overall portfolios is due to diversification of investments which is more pronounced in mid- and small-cap funds. They say fund managers are spreading their investments in midand-small cap funds to deal with expected increase in volatility in midand-small size companies.

Experts also recommend more diversified portfolios now as the rally in markets has been too steep in too short time. However, not all fund managers are focusing on diversification. A handful of large schemes from mutual fund houses such as ICICI Prudential, SBI and Reliance have, in fact, increased their investments in top 10 stocks this calendar.