Mutual Funds cut energy, IT bets in July, bought financial stocks

They bought financial services, industrials and consumer discretionary stocks

Mutual funds (MFs) allocated a smaller share of their capital to the information technology, energy, and telecommunications sectors in July.

The benchmark S&P BSE Sensex, movements of which are seen to be a broad representation of market direction, was up 8.6 per cent to end July at 57,570.25. The three sectors mentioned above saw their MF allocations drop between 20 basis points and 75 basis points last month, shows data from tracker primemfdatabase.com. 

Financial services, industrials and consumer discretionary stocks, on the other hand, saw higher allocations -- 15-100 basis points. 

These sectors outperformed the Sensex: the S&P BSE Bankex was up 12.1 per cent in July, while the S&P BSE Consumer Discretionary Goods and Services index rose 11.9 per cent, and the S&P BSE Industrials rose 12.3 per cent.

These additions were part of a larger trend seen in the three months ended June 30, 2022, suggested a July 26 India Equity Strategy report from the India arm of global financial services group Morgan Stanley. “Domestic share owners are price setters in India and bought financials, consumer discretionary, and industrials in the trailing quarter -- our top three sector recommendations albeit the position sizes are narrower than what we think is warranted in a macro-driven market,” said the note authored by equity analyst Sheela Rathi, and equity strategists Ridham Desai and Nayant Parekh.

It noted that foreign portfolio investors (FPIs) have lowered bets on the consumer discretionary and industrials sectors in contrast.

FPIs cut down their exposure to the oil and gas, and consumables sectors the most (by 120 basis points) in July, according to an analysis of depository data for last month. Information technology stocks saw an 80-basis point reduction. The sectors which saw the largest increase in the share of holdings were financial services (80 basis points) and fast-moving consumer goods (30 basis points).

Sectors that are more focused on the domestic market may outperform as the world prepares itself for a recession, according to an August 8 Bank of America Corporation India Earnings Radar report, authored by research analysts Amish Shah, Ankur Deore, Udit Dhekale, Shalav Saket.

“We remain constructive on internal facing -- domestic cyclicals, consumption (overweight industrials, financials, and autos, staples) -- and remain underweight on external/export-driven sectors, such as materials and select discretionary, and neutral on IT,” it said.

MFs have continued to be net buyers amid FPI outflows. They bought a total of Rs 82,221 crore as of June 2022 in the financial year 2022-23, shows the latest data from the Securities and Exchange Board of India’s monthly bulletin.

FPIs were net buyers by Rs 4,989 in July 2022. This was the first time in nine months that their flows turned positive. They have been net buyers to the tune of Rs 44,481 crore, so far, this month, shows data as on August 19. Their net outflows on a year-to-date basis since April 2022 is Rs 57,870 crore.