Indian equities saw ferocious selling by foreign institutional investors (FIIs) amid the ongoing global economic concerns of crude and gas price hikes, rising inflation, and currency depreciation against the US dollar. Only in the first eight months of 2022 till August 31, FIIs have sold shares worth Rs 2.68 lakh crore in the Indian equity market.
However domestic institutional investors (DIIs) led by mutual funds have stood firm and invested Rs 2.34 lakh crore in Indian equities. This strong inflow of liquidity provided by mutual funds (MFs) along with other DIIs and retail investors has absorbed the shock created by FII selling, which has led the Indian stock market to continuously outperform many global stock benchmarks.
Data available with Ace Equity, BSE, and CMIE prowess showed that as many as 40 stocks, listed on BSE, where MFs have increased their stake by at least 3 per cent in the last one year. Many market watchers consider mutual funds or DII buying as a bullish signal for a stock selection and in the past stocks where MFs have increased their stake have performed really well, providing decent returns to investors.
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Gateway Distriparks has seen maximum mutual fund buying and their stake has reached to 32.17 per cent from zero per cent one year back (increased 32.17 per cent), followed by Rolex Rings, whose MF holdings rose to 21.8 per cent from 6.96 per cent (increased 14.84 per cent), Nuvoco Vistas Corporation with stake of 12.18 per cent from 0 per cent last year (increased 12.18 per cent), Max Healthcare Institute MF holdings of 19.2 per cent (increased 11.3 per cent) and Kalpataru Power Transmission MF holdings of 34.44 per cent (increased 9.7 per cent).
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Some other stocks also witnessed significant mutual fund buying where MFs’ stakes have increased in the range of at least 5 per cent to 9.5 per cent led by Multi Commodity Exchange Of India followed by Sansera Engineering, Can Fin Homes, Bharat Forge, Ipca Laboratories, Orient Electric, Tatva Chintan Pharma Chem, CCL Products (India), SBI Cards And Payment Services, and Navin Fluorine International. Stocks in which MFs’ stake has increased in the range of at least 3 per cent to 5 per cent include Mahindra & Mahindra, LIC Housing Finance, V-Mart Retail, Thangamayil Jewellery, JB Chemicals & Pharmaceuticals, Axis Bank, Westlife Development, HDFC Bank, Avanti Feeds, eClerx Services, Oberoi Realty, Apollo Pipes, Container Corporation Of India, JK Paper, V-Guard Industries, Jamna Auto Industries, Jubilant FoodWorks, Godrej Consumer Products, Hero MotoCorp, Chalet Hotels, Indian Bank, SBI Life Insurance Company, Indiabulls Real Estate, Sudarshan Chemical Industries and Ultratech Cement.
Most of the successful investors suggest mutual fund buying can be a good parameter for stock selection but it is not the only parameter many other factors are also needed to be analysed such as financial performance of the company, management vision, and capability, competitive advantage among other.