Mutual funds are expected to be among the worst hit by the deferment of the divestment process. BPCL and HPCL, the two companies in the eye of the storm, were indeed the investors' delight in recent times. Now, with their prices tumbling, both individual and institutional investors are going to feel the pinch.
Almost 62 equity-oriented schemes of private mutual funds have invested in these companies. In some cases, the investment in these two public sector oil refinery stocks is as high as 20 per cent of the total portfolio.
The stalled privatisation process is expected to bring down the net asset values (NAVs) of these schemes, analysts said. Some funds may also resort to paring their exposure in these stocks to limit the fall in the NAVs, they added, which will result in a cascading effect on the stock price.
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Moreover, the slide will not only be limited on account of these two stocks. With the entire sentiment towards the privatisation process turning negative, the heat will be tuned on all PSU sector stocks. Since these form a major part of the portfolio of many funds, their NAVs will show a sharp drop.
As state-run companies figure prominently in the portfolio of leading private sector mutual funds, such as Birla Advantage Fund, Prudential ICICI Growth Fund and DSP ML Equity Fund according to published information, the persistent slide in the companies' shares could erode the NAVs of these funds.
A 20 per cent fall in the prices of BPCL and HPCL alone would have led to a 3 per cent to 5 per cent erosion in the NAVs of some equity-linked funds by the end of trading on Monday, analysts said.
According to data, HPCL and BPCL are the top two shares in Birla Advantage's portfolio, with the shares making up 13.66 per cent of the fund's Rs 349 crore asset base.
Zurich India Equity Fund is in a similar situation. Bharat Petroleum is Zurich's top stock, accounting for 7.5 per cent of its Rs 257 crore asset base, followed by Hindustan Petroleum at 7.4 per cent.
Hindustan Petroleum is also the leading stock in the Rs 346 crore Prudential ICICI Growth Fund portfolio, with the shares accounting for 5.72 per cent of the fund's asset base. Bharat Petroleum and Hindustan Petroleum together make up 12.4 per cent of DSP ML Equity Fund's Rs 2,641 crore asset base, and account for 11.47 per cent of Franklin Templeton's Franklin India Growth Fund.
The fall in the prices of PSU shares will persist as funds withdraw from the sector, analysts said.For instance, data from the Association of Mutual Funds (AMFI) show Birla Advantage's fund has 11 PSU shares in its portfolio, including telephone services company Mahanagar Telephone Ltd. (MTNL) and Oil & Natural Gas Corporation (ONGC).
These 11 state-run shares make up about 26 per cent of the Birla Advantage fund's Rs 349 crore asset base. The total market capitalisation of the PSU shares - at Rs 1.44 lakh crore at the close of trading on Monday - is set to fall further as funds try to make up for the losses by picking up shares in more lucrative growth sectors.
As the NAVs of private sector mutual funds fall in consonance with the declines in state-run shares, there will be pressure to switch as investors may exit funds focused on state companies, analysts said.
Disinvestment or privatisation, which has been a key buying trigger for the equity markets, drove the BSE's index for state-run shares to a 52-week high of 1,700.95 points on April 2. It has played its part in rallying more investments to equity-linked mutual funds.
A mutual fund industry source said net investments were Rs 56 crore in March, Rs 90 crore in April, Rs 84 crore in May, and Rs 127 crore in June.
"The incremental increase in net investments was largely built around the privatisation story. That pattern is over, at least for the moment," an industry source added.