Equity MFs go hunting for less known stocks

Many of these have proved multi-baggers in the past year, with value of some rising 12-fold

Mutual fund (MF) managers seem to have taken a liking for smaller stocks with unique business models. A lot of new and relatively unknown companies are beginning to figure in the holdings of equity schemes offered by fund houses. Such companies include Amrutanjan Health Care, Aarti Drugs, Caplin Point Laboratories, CMI Ltd, Orbit Exports, Oriental Carbon & Chemicals and Radha Madhav Corporation.

All these stocks have proved   multi-baggers through the past year. Some stocks have even seen an unprecedented 12-fold increase in value. Not just small fund houses, big ones, too, have started digging into these stocks, rarely tracked by research analysts. Despite sharp gains in the market in the past year, fund managers continue to look for new ideas in the small-cap space.

Last month, HDFC Mutual Fund, India’s largest, bought 28,100 shares of Swelect Energy Systems, worth Rs 1.4 crore. On the BSE, the stock is trading at Rs 591, much higher than its one-year low of Rs 167. Caplin Point Lab, whose shares were bought by Motilal Oswal Mutual Fund, is currently trading at Rs 809, compared with its 52-week low of Rs 133. Birla Sun Life Mutual Fund spent Rs 6.8 crore to buy 167,800 shares of Orbit Exports. On the exchanges, the stock is trading at Rs 391, against its one year-low of Rs 90.

All these entrants in fund managers’ portfolios are unique and there isn’t much research material available on many of these counters. “We keep evaluating several companies, irrespective of which index it belongs to. Some of these companies have successfully passed our strict filters and we took a call that they are worth looking into,” said a senior executive at a fund house.

Despite the sharp gains in the stock, fund managers seem unperturbed. “Some of these stocks look very promising and it wouldn’t be surprising to see them gain even further,” said the official quoted earlier.

A manager at a small fund house said, “At a time when 90 per cent of the market attention is skewed towards large-cap stocks, looking beyond the category does bring several pleasant surprises. I do not mind picking stocks that are out of the benchmarks my schemes are compared against. It helps portfolios give super alpha returns,” he says.

CMI Ltd, a group-B company in the telecom cable segment, has generated phenomenal returns in the past year. Against the stock’s 52-week low of Rs 9, it is currently trading at Rs 114.

Robust flows into MF schemes are forcing fund managers generate new ideas, say officials in the sector. So far this financial year, net inflows into equity schemes have been about Rs 50,000 crore, while gross sales in the equity segment stand at a staggering Rs 1.2 lakh crore. The asset under management of the sector has jumped to Rs 3.41 lakh crore from about Rs 2 lakh crore a year ago. Currently, MF players offer investors about 400 equity-related schemes.