Even as consumer demand was low due to complete lockdown in most part of financial year 2021, mutual funds 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 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 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. 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.
Technology sector saw a massive rise in weightage in FY21 to 11.9% or 300 bps compared to previous year. “The sector is now the 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 the month of March, three of the top five stocks belonged to technology: Infosys (up ₹7000 crore), TCS ( ₹3960 crore, and HCL Tech (up ₹1690 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 ₹34700 crore by equity mutual funds in FY21 first outflow in seven years.
“Domestic investors have capitalized on the market rally to book profit and rebalance the portfolio as the market continues to achieve new highs, leading to moderation in domestic MF flows. The year saw a decline in sales of equity schemes (down 7% YoY to ₹2,30600 crore ). The pace of redemptions picked up to ₹265300 crore (up 64% YoY),” Mistry added.
The MF industry’s total asset under management (AUM) increased 41% year-on-year to ₹31.4 trillion in FY21, led by an increase in equity funds, income funds and other exchange trade funds (ETFs).
Among sectors, consumer slipped to fourth place from second place a year ago, with a 240 bps decrease in weightage to 7.4%. Metals improved its position to 14 from 16 a year ago, with the weightage increasing by 80 bps to 2.6%.
In the month of March, mutual funds were net buyers of 50% Nifty stocks. The highest net buying in March was in BPCL (up 28.6%), SBI Life Insurance (up 28.3%), Tata Steel (up 9.6%), Bajaj Auto (up 8.9%), and UPL (up 8%).
The month of March was an IPO frenzy month where fund houses collectively deployed ₹1600 crore in the 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 Jewelers, Anupam Rasayan and Barbeque Nation.