Domestic fund managers up stake in beaten-down stocks, shows data

Domestic fund managers have raised stake in 46 per cent of the BSE 500 companies that have seen 15-70 per cent correction in their stock prices in the March quarter.

According to the shareholding data sourced from Capitaline, MFs have raised stake in 233 companies that saw such steep corrections during the March quarter.

Companies, which have seen a sharp jump in MFs’ stake included CARE Ratings, where their stake has increased by 515 basis points (bps); its stock corrected 48 per cent in the March quarter. In year-to-date, the stock is down 38.3 per cent.

The market recovery since March lows has helped curb selling pressure that several stocks had come under. Since March 23 lows of 7,610 points, the 50-share Nifty index is up 33.3 per cent.

Experts say there could be select opportunities. “We remain positive on companies/sectors expected to demonstrate relative resilience in their earnings in the disruptive phase, leading to less cut in 2020-21 earnings,” said Tushar Pradhan, chief investment officer, HSBC Global Asset Management India. Analysts expect earnings visibility to remain weak in the near term. “The adverse economic impact of Covid-19 is expected to wipe out FY21 estimated earnings growth. The two months of economic lockdown has taken a toll on corporate balance sheets, even as underlying demand suffered,” analysts Motilal Oswal Financial Services said in a client note.

 

Among other companies, PVR has seen MFs' stake go up by 449 bps. The multiplex operators' stock is down 43.6 per cent year-to-date. SpiceJet, which is down 58.5 per cent in the same period, has seen MFs’ stake rise 343 bps in the March quarter.

Fund managers say earnings growth will remain scarce in several cases and such companies would not be able to sustain the uptick in share prices.

“The recent rally in the markets has led to an uptick in valuations of companies, even as these firms are unlikely to see any earnings growth in the near term due to the disruption caused by the pandemic,” said a fund manager.

“We could see some growth coming back in FY22 as it will have a favourable base effect of the current financial year,” he added.