Small Caps in the Limelight of MF Schemes

Blue-chip are every investor’s darling. HDFC Bank, ICICI Bank, Infosys, UltraTech Cement and Sun Pharma are some of the frontline names that domestic mutual funds shower their investments on.

However, beyond these names in the stock market there are certain other names that MF Schemes are looking out for.

Mutual fund schemes are interested in smallcap stocks as well where some of them are not even the constituents of the BSE200 basket. A glance at the smallcap names that are held extensively by various mutual fund schemes may help investors solve the dilemma that they often face while identifying what fund managers consider as ‘quality’ stocks.

Based on the portfolio data of various mutual fund schemes, here is a list of several stocks that figure prominently in the scheme of things of many funds.

Repco Home Finance: A total of 15 MF houses have Rs 1,168 crore investments to this small cap stock. The NBFC has a weightage anywhere between 0.02% and 6.94% in as many as 100 MF schemes.

The stock is in 28 schemes of Birla Sunlife AMC, with Rs 214 crore worth of investment. The stock constituted 2.17% to 6.94% of weightage in the fund house’s various schemes as on August 31 data. The stock is also in the 29 schemes of SBI Funds Management, 3 schemes of Franklin Templeton Asset Management and 4 schemes of DSP BlackRock Investment Managers, with the exposure to this stock ranging from worth Rs 170 crore to Rs 257 crore. Experts anticipate the NBFC to witness a loan growth of around 29% CAGR to Rs 12,808 crore over FY16-18, driven by healthy demand from self-employed. This, together with an improvement in asset quality, is anticipated to result in healthy return ratios. This stock is the top 500 pick for the quarter by Dynamic Levels as well.

FAG Bearings: This stock is being eyed by 23 MF houses. Franklin Templeton Asset Management (India), IDFC AMC, SBI Funds Management, HDFC AMC and Sundaram AMC collectively had Rs 1,044 crore worth of exposure to FAG Bearings. By and large, 84 MF schemes held Rs 1,772 crore worth of FAG Bearings shares. Analysts are expecting FAG Bearings to gain from the slight increase in recovery in the auto and industrials cycles. It is also expected to perform well on capex and obtain structural benefits from localization and innovation, leading to constant margin improvement.

Sanofi India: 79 schemes are invested in this MNC Pharma stock. Big mutual fund houses such as Reliance Nippon Life AMC have invested around Rs 305 crore in 2 schemes, UTI AMC has the investment worth Rs 250 crore in 9 schemes, Birla Sunlife AMC has Rs. 215 crore invested in 23 schemes and Franklin Templeton AMC (India) Private Limited has invested Rs 121 crore in 3 schemes. All these MF houses have significant holdings of the maker of Combiflam and Avil. The weightage of this stock in these schemes ranges between 1 per cent and 9 per cent. Sanofi India is among the top 500 best performing stocks that are identified by Dynamic Levels for the quarter.

Equitas Holdings: This stock got newly listed in April 2016 and has caught the fancy of many Mutual Funds. A total of 102 Mutual Fund schemes from 15 fund houses had Rs 1,613 crore investments in the stock. Franklin Templeton AM (India), SBI Funds Management, Birla Sunlife AMC, UTI Asset Management and Kotak Mahindra AMC collectively hold Rs 1,414 crore worth of shares in the microfinance company as of August 31. The stock had up to 5.7% weightage in the schemes of the abovementioned MFs.

There is an assumption that the size of the microfinance market could expand by over 200% to up to Rs 4,30,000 crore over the next 3-4 years on the assumption that the loan size will grow twofold from the current level and microfinance companies will be able to amplify their presence in the under-penetrated areas. Equitas Holdings has also made its space in the top 500 performing stocks that are picked by Dynamic Levels for the quarter.

Sadbhav Engineering: 71 mutual fund schemes have invested a total of Rs 1,266 crore exposures to this smallcap stock. HDFC AMC has Rs 415 crore invested in 12 schemes, ICICI Prudential AMC has worth Rs 288 crore invested in 3 schemes, SBI Funds Management has invested Rs 180.37 crore in 6 schemes) Tata AMC has the investment worth Rs 180 crore in 18 schemes and DSP BlackRock Investment Managers have Rs 102 crore invested in 2 schemes. All the above MF houses are heavily invested in this stock as evident by the data.

Road companies have reported stable execution of the existing under-construction projects. The second half of FY17 is likely to show a healthy jump in revenues. Meanwhile, Kotak Institutional Equities expects the company to report a modest YoY slump in Q2 revenues on depleted BOT backlog, partly remunerated by the start of execution of the recently-won EPC projects. Sadbhav Engineering is the top 500 stock identified by Dynamic Levels for the quarter.

Wabco India: This auto component company is likely to gain from a revival in the commercial vehicle cycle. Experts trust that the company has the good growth potential from technologies like ABS and AMT and has strong parentage which provides good prospect for export growth and strong aftermarket potential. In all, 62 schemes of 19 MFs hold Rs 931 crore worth of WABCO India shares as of August 31. Axis Asset Management, Sundaram AMC, Birla Sunlife AMC, Tata Asset Management and L&T Investment Management collectively hold Rs 590 crore worth of Wabco India shares at August end. Dynamic Levels have identified Wabco as the top 500 performing stock for the quarter.

KEC International: Fifteen large mutual fund houses such as HDFC AMC, Reliance Nippon Life AMC, SBI Funds Management and UTI AMC have stakes worth over Rs 806 crore as of August 31 in KEC. KEC International is among Dynamic Levels’ top 500 picks for the quarter.

Strong order inflows so far this financial year are in line with the expectations of the experts confirming their conviction that KEC would deliver strong earnings growth, going ahead. Though the stock has corrected 20 per cent from its peak in spite of improving fundamentals, analysts continue to remain positive on the stock.

However, some experts believe that investors should not blindly trail mutual funds portfolios.

Looking at popular stocks can be one thing investors may consider while taking investment decision. But one must take valuations into account. It may be the case that the stock has surged a lot of late and fresh investments may not yield good returns.

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