The unexpected surge in Infosys Technologies’ shares on Friday, driven by better-than-anticipated results, caught most mutual fund managers by surprise, as equity schemes have been trimming exposure to the stock following a string of disappointing quarters.
Fund managers, in private, concede the decision to continue reducing holdings in Infosys was an oversight, as the stock’s valuations were cheap before Friday.
Top equity schemes with assets under management of between Rs 2,500 crore and Rs 12,000 crore — such as HDFC Top 200, HDFC Equity, Reliance Growth, Franklin India Bluechip, DSPBR Top 100, Birla Sun Life Frontline Equity and ICICI Prudential Dynamic Fund, among others — had cut their holdings in Infosys in December.
For instance, HDFC Top 200, the largest equity mutual fund scheme by assets, cut exposure to Infosys by 31 basis points (bps), while Franklin India Bluechip reduced its holding by 34 bps.
Funds like ICICI Prudential Dynamic and DSPBR Top 100 cut their stakes by 2.8 per cent to 3.8 per cent, respectively (see table).
“Though valuations at which Infosys was trading in the second half of CY12 was quite attractive, the majority of market participants, including brokers, sector analysts and fund managers, feared further downward revision of the company’s guidance. That’s why fund managers trimmed the exposure,” said a chief investment officer (CIO), who did not wish to be identified.
On Friday, Infosys shares jumped 17 per cent, posting its highest gain on the National Stock Exchange, after posting stronger-than-expected quarterly profit and unexpectedly raising sales forecast.
Fund managers said the widening gap in valuations between shares of Infosys, the second-largest software exporter, and Tata Consultancy Services (TCS) was an indication that the worst could be over for Infosys.
“It was a contrarian call in the true sense but few had the courage to take it because of fear of underperformance if the bet boomeranged,” said the senior equities fund manager of a top-five mutual fund house.
Though Infosys’ stock valuations look cheaper than that of TCS, fund managers are not unwilling to go all out to cut exposure to TCS and shift the money to Infosys.
“The decision to cut exposure in the last few quarters was actually based on disappointing numbers. So, we are looking at consistency in the rebound to increase our holding substantially,” the senior fund manager said.
| OPPORTUNITY LOST India’s largest equity schemes’ reduced exposure in Infosys | ||||
| Equity scheme | % of net assets in shares of Infosys |
Change |
Net assets | |
| Nov 30 | Dec 31 | |||
| HDFC Top 200 | 5.67 | 5.36 | -31 | 12,122 |
| HDFC Equity | 5.39 | 4.84 | -55 | 10,556 |
| HDFC Prudence | 3.71 | 3.44 | -27 | 6,239 |
| Reliance Growth | 3.91 | 3.78 | -13 | 5,687 |
| Franklin India BlueChip | 6.10 | 5.76 | -34 | 5,040 |
| Reliance Equity Opportunity | 5.04 | 4.41 | -63 | 4,611 |
| ICICI Pru Focused BlueChip Eq Retail | 5.51 | 4.42 | -109 | 4,231 |
| ICICI Pru Dynamic | 8.37 | 5.56 | -281 | 3,961 |
| DSPBR Top 100 Eq Reg | 6.49 | 3.16 | -333 | 3,569 |
| HDFC Tax Saver | 4.23 | 3.92 | -31 | 3,448 |
| Reliance Regular Savings | 3.24 | 3.12 | -12 | 2,949 |
| Birla Sun Life Frontline Equity | 2.72 | 2.18 | -54 | 2,936 |
| DSPBR Equity | 5.79 | 1.98 | -381 | 2,616 |
| Sources: Value Research Online & asset management companies | ||||
