Mutual funds make most of sudden rally in stocks

Fund managers invested heavily just before Sensex galloped a thousand points

Equity mutual funds acted smartly just before the rally on Wednesday and Thursday, which sent Sensex soaring by 1,000 points and Nifty by 300 points. They turned heavy buyers four days before the surge in stocks began on Wednesday. This helped funds make the most of the boom.

After two months of net selling, funds went shopping in May. They bought shares worth Rs 5,000 crore till May 24 (Tuesday) — the day Sensex and Nifty started to rally. Funds pumped in more than half of that amount in four trading sessions starting May 19 (Thursday).

Over Wednesday and Thursday, the Sensex galloped 1,000 points, up 4.5 per cent. During this time, the 10 most-owned stocks by funds gained 6.6 per cent, on average. It's interesting to see that a fourth of fund assets are invested in these 10 stocks.

For instance, shares of Larsen & Toubro — fourth-most-owned by equity mutual funds — gained 18.7 per cent since Monday close. Over this period, ICICI Bank — the third-most invested stock — was up nine per cent; State Bank of India up 8.7 per cent; Axis Bank 6.8 per cent; Maruti Suzuki five per cent; IndusInd Bank and Tata Motors 4.5 per cent each. The top-two owned stocks, HDFC Bank and Infosys, gained 3.9 and 3.4 per cent, respectively.

"All indicators are signalling towards growth, which will be positive for the markets and more allocation will be done in stocks. The expected US central bank rate hike is giving confidence to global markets that deflation worry is moving away and growth is picking up in the economy. The worst appears to be behind us and we may enter a bull run as corporate profits of the March quarter were the best in the past 12 quarters," said A Balasubramanian, chief executive of Birla Sun Life Mutual Fund.

Mutual funds’ equity segment, which accounts for Rs 4 lakh crore or 30 per cent of overall assets, is witnessing strong inflows from domestic retail (small) investors. In the past two years, Rs 1.7 lakh crore has been poured into stocks through funds.

From March and April, fund managers sold shares worth Rs 10,800 crore, but had enough cash with themselves, which they deployed in May.

Funds have been buying stocks on correction. The shopping has intensified over the past year, when markets went into consolidation.

Currently, the mutual fund sector offers 460 equity-related schemes.