Last six months saw a notable shift in mutual fund industry allocation. Exposure to top 10 Nifty stocks by weight increased sharply from 50.9% in December 2018 to 57.9% in June 2019, shows Motilal Oswal’s Fund Folio Indian Mutual Fund Tracker report.
For June 2019, the top 10 Nifty stocks as per weights are HDFC Bank, Reliance Industries, Housing Development Finance Corporation, ICICI Bank, Infosys, ITC, Tata Consultancy Services, Kotak Mahindra Bank, Larsen & Toubro and Axis Bank.
Historically (between March 2017 and December 2018) Indian MF industry has maintained exposure between 45% and 53%, according to the report. However, there was a sharp jump in January 2019 to around 56%.
We spoke to a few fund managers to understand the reason for this shift.
Gopal Agrawal, Senior Fund Manager and Head - Macro Strategy, DSP MF shares that while the current exposure may seem lopsided, analysis of Nifty 50 index shows that the index is tilted towards the top stocks too. Around 86% of the Nifty 50’s market value comes from 25 stocks. Moreover, mutual fund exposure is a function of which fund category is receiving inflows and companies with earnings visibility.
AMFI data shows that multicap funds have received highest flows in the last three months. Value Research data for December 2018 to June 2019 shows that majority of the multicap funds had over 60% exposure to large cap stocks.
Vetri Subramaniam, Head-Equities, UTI MF shared that the increase in exposure is because of both passive and active factors. In the last few months, some of the heavyweights in Nifty 50 have rallied while the rest of the index has seen some correction. Consequently, their weightage has increased passively, said Vetri. Analysis of Nifty 50 index shows that in December, the top 10 stocks by weight constituted 58.93% of the index; this grew to 60.73% in June 2019.
In addition, the industry too may have actively increased its allocation to top stocks as they offered better risk-return proposition amidst the market uncertainty.
Source: Motilal Oswal
