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  • Seven smallcap stocks where top MF schemes are chasing big money

    Quote by Rajeev Thakkar in The Economic Times, October 17, 2016

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    Seven smallcap stocks where top MF schemes are chasing big money
    Mutual funds do invest in smallcap stocks as well. Some of them are not even constituents of the BSE200 basket.

    NEW DELHI: Everyone loves the blue-chip stocks, and HDFC Bank, ICICI Bank, Infosys, UltraTech Cement and Sun Pharma are some of the frontline names that domestic mutual funds swear by.

    However, there is life beyond these names in the stock market.

    Mutual funds do invest in smallcap stocks as well. Some of them are not even constituents of the BSE200 basket. A look at the smallcap names that are held widely by various mutual fund schemes may help solve the dilemma that investors face while identifying what fund managers consider as ‘quality’ stocks.

    Based on the portfolio data of various mutual fund schemes, we listed out seven stocks that figure prominently in the scheme of things of many funds.

    Repco Home Finance: A total of 15 fund houses have ₹ 1,168 crore exposure to this smallcap stock, data compiled from database Ace MF for August showed. The NBFC has a weightage anywhere between 0.02 per cent and 6.94 per cent in as many as 100 mutual fund schemes.

    Birla Sunlife AMC has this stock in 28 of its schemes, with ₹ 214 crore worth of investment. The stock constituted 2.17 per cent to 6.94 per cent of weightage in the fund house’s various schemes as of August 31. SBI Funds Management (29 schemes), Franklin Templeton Asset Management (3 schemes) and DSP BlackRock Investment Managers has ₹ 170 crore to ₹ 257 crore worth of exposure to this stock. Centrum Broking expects the NBFC to see a loan growth of around 29 per cent CAGR to ₹ 12,808 crore over FY16-18, driven by healthy demand from self-employed. This, along with an improvement in asset quality, is expected to result in healthy return ratios, the brokerage said in a recent note.

    FAG Bearings: This stock is being tracked by 23 mutual fund houses. Franklin Templeton Asset Management (India), IDFC Asset Management, SBI Funds Management, HDFC Asset Management and Sundaram Asset Management together had ₹ 1,044 crore worth of exposure to FAG Bearings. Overall, 84 MF schemes held ₹ 1,772 crore worth of FAG Bearings shares. Brokerage Edelweiss Securities expects FAG Bearings to gain from an uptick in recovery in the auto and industrials cycles. It is also likely to perform well on capex and derive structural benefits from localisation and innovation, leading to sustained margin improvement.

    Sanofi India: A total of 79 schemes are invested in this MNC pharma stock. Big mutual fund houses such as Reliance Nippon Life Asset Management (₹ 305 crore in 2 schemes), UTI Asset Management Company (₹ 250 crore in 9 schemes) Birla Sunlife Asset Management Company (215 crore in 23 schemes) and Franklin Templeton Asset Management (India) Private Limited (₹ 121 crore in 3 schemes) have significant holdings of the maker of Combiflam and Avil. The weightage of this stock in these schemes is anywhere between 1 per cent and 9 per cent. The company is among Centrum Broking’s top picks in the pharma space.

    Equitas Holdings: This newly listed stock has caught the fancy of many MFs. A total of 102 MF schemes from 15 fund houses had ₹ 1,613 crore investment in the stock. Franklin Templeton Asset Management (India), SBI Funds Management, Birla Sunlife Asset Management, UTI Asset Management and Kotak Mahindra Asset Management together held ₹ 1,414 crore worth of shares in the microfinance company as of August 31. The stock had up to 5.7 per cent weightage in the schemes of the aforementioned MFs.

    “There is an assumption that the size of the microfinance market could expand by over 200 per cent to up to ₹ 4,30,000 crore over the next three to four years on the assumption that the loan size will double from the current level and microfinance companies will be able to increase their presence in the under-penetrated areas,” said DK Aggarwal, Chairman and MD, SMC Investments and Advisors.

    Sadbhav Engineering: Seventy-one mutual fund schemes have a total of ₹ 1,266 crore exposure to this smallcap stock. HDFC Asset Management (₹ 415 crore in 12 schemes), ICICI Prudential Asset Management (₹ 288 crore in 3 schemes), SBI Funds Management (₹ 180.37 crore in 6 schemes), Tata Asset Management (₹ 180 crore in 18 schemes) and DSP BlackRock Investment Managers (₹ 102 crore in 2 schemes) are heavily invested in this stock.

    Brokerage ICICI Securities said road companies reported steady execution of the existing under-construction projects. The second half of FY17 is expected to show healthy jump in revenues, it said in a September note. Kotak Institutional Equities, meanwhile, expects the company to report a modest YoY drop in Q2 revenues on depleted BOT backlog, partly compensated by the start of execution of the recently-won EPC projects.

    Wabco India: This auto component company is expected to gain from a recovery in the commercial vehicle cycle. Experts believe the company has good growth potential from technologies like ABS and AMT and has strong parentage which provides good possibility for export growth and strong aftermarket potential. A total of 62 schemes of 19 MFs held ₹ 931 crore worth of WABCO India shares as of August 31. Axis Asset Management, Sundaram Asset Management, Birla Sunlife Asset Management, Tata Asset Management and L&T Investment Management together held ₹ 590 crore worth of Wabco India shares at August end.

    KEC International: Fifteen big mutual fund houses such as HDFC Asset Management, Reliance Nippon Life Asset Management, SBI Funds Management and UTI Asset Management have stakes in the company. These stakes were worth over ₹ 806 crore as of August 31. KEC International is among ICICI Securities’ top picks in the capital goods space.

    “Strong order inflows so far this fiscal are in line with our expectations which confirm our conviction that KEC would deliver strong earnings growth, going ahead. Though the stock has corrected 20 per cent from its peak despite improving fundamentals, we continue to remain positive with a target price of ₹ 170, valuing stock at 13x FY18E EPS,” said Reliance Securities.

    Meanwhile, some experts believe that investors should not blindly follow mutual fund schemes.

    “Looking at popular stocks can be one factor investors may consider while taking investment decision. However, one must take valuations into account.It may be the case that the scrip has surged a lot of late and fresh investments may not yield good returns,” said Rajeev Thakkar at Parag Parikh Financial Advisory Services.

    The original article could be seen here.

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