MF holding in Nifty companies at 10-year high

Domestic mutual funds (MFs), which pumped in a record about Rs 25,000 crore in equities during July - September (Q2FY16) quarter, have seen their holding in Nifty 50 companies touch an over-decade high.

Shareholding pattern data for the quarter ended September 2015 filed by these companies with the stock exchanges reveals that the MFs' holding in the Nifty 50 companies has increased to 4.6% in September quarter, from 4.1% at the end of June quarter. Earlier, in the September 2002 quarter, MFs held 4.8% stake in Nifty 50 companies, Capitaline Plus data show.

Fund managers have been bullish on the markets ever since the Narendra Modi-led BJP government came to power at the Centre. Since then, their combined holdings in Nifty 50 companies increased 130 bps from 3.4% in the quarter ended June 2014.

With a net investment of Rs 91,105 crore in the Indian equity markets, September 2015 marks the 17th consecutive month of net investment by mutual funds in the equity markets since May 2014, data shows.

Continuing their uptrend for the fourth consecutive quarter, retail mutual fund folios also rose in the September quarter by a record 1.51 million to 42.40 million. Overall, folios rose by 1.67 million or 3.9% in the September quarter, according to rating agency Crisil.

Navneet Munot, chief investment officer (CIO) at SBI Funds Management, says: "Existing mutual fund schemes have seen inflows from investors. This has largely been due to the shifting of portfolios from the physical assets to the financial assets by domestic investors. Given the fresh flows, mutual funds' relative holdings across the board, including the Nifty 50 companies has also seen a rise. I expect this trend to continue for the next one year with inflows from both the retail and institutional investors coming in."

Of the Nifty 50 companies, MFs increased their stake in 39 firms by up to two percentage points, while reduced their holdings in the remaining 11 companies by less than one percentage points.

MFs bought an additional stake in all nine banks in the benchmark index. In IndusInd Bank, Bank of Baroda (BoB), YES Bank and Axis Bank, they have raised their holdings by more than one percentage points each.

"The fact that interest rates are coming down and the latest 50 bps cut by the Reserve Bank of India (RBI) has enthused investors. That's why we perhaps saw some buying in the banking stocks. Mutual funds were probably a little less invested in the Banking, Financial services and Insurance (BFSI) segment, particularly the PSU side," says Taher Badshah, senior fund manager and co-head of equities at Motilal Oswal Asset Management.

"Overall, I think that domestic investor's appetite for equities in general is looking good. Given this, we should see more inflows from investors in mutual funds," he adds.

Foreign institutional investors (FIIs), on the other hand, have seen their ownership decline 40 bps compared to the June quarter. FIIs investment saw a net outflow of $2.58 billion (Rs 17,315 crore) from Indian equities during the quarter.