Mutual funds bet on metals, retail; shun telecom, cement

Source: fc:Kumar Shankar Roy Mar 28 2010 , Kolkata

MF investments rise in construction, power, hotels & mining
Mutual fund houses have systematically increased their 

exposure to consumer durables, retail, construction, chemicals,
ferrous metals, minerals and mining firms over the past six months, 

while they have shunned telecom, IT-hardware, cement, petroleum

products and auto ancillaries.

While the broader market hasn’t moved much during this period, specific stocks have clocked good gains. The trend in overall sectoral exposure of mutual funds may hold a clue on how different diversified equity, balanced or tax-saving funds may perform in the days ahead.

A comparison of equity assets under management of mutual funds at the end of September 2009 and February 2010 (the latest data) shows ferrous metals has broken into the top 10 most preferred sector club of mutual funds with total investment of Rs 6,415.42 crore, up nearly 40 per cent since September 2009.

With the rise in capacity expansion and industrial activity, companies in this industry have seen better fortunes. With the economy gaining strength, mutual funds’ equity holdings in consumer durables has risen nearly 50 per cent at Rs 1,107.37 crore. Retail, a direct beneficiary of higher consumer spend, has also benefitted with MF holdings touching Rs 1,064.72 crore in February 2010, up nearly 41 per cent from Rs 755.70 crore at the end of September 2009.

Other notable sectors that have seen significant jump in MF investments include transportation (assets up 45 per cent) and hotels (up 60 per cent) as industrial activity and travel (both leisure and business) segments too witnessed a sharp uptick. Minerals & mining, construction, power and chemicals have also see mutual fund holdings improve between 10 per cent to 20 per cent, data showed.

“While cash as a percentage of equity assets under management hasn’t really changed from 6-7 per cent levels, the trend in sectoral holdings of mutual funds indicates that fresh allocations may be tailing sectors that have performed well in the past 3 to 4 months,” said Srikanth Meenakshi, director of fundsindia.com.

On the other hand, fund houses have drastically reduced exposure in equity derivatives, telecom (services), IT-hardware, cement, petroleum products and auto ancillaries, Securities and Exchange Board of India (Sebi) data shows.

Most equity fund managers invest in equity derivative products. However, recent data shows that the trend has been on the wane over the past six months. While equity funds held around Rs 2,300 crore in derivatives at the end of September 2009, the figure was less than Rs 1,100 crore at the end of February, a drop of 55 per cent.

“The market has not been very volatile of late, and that has taken some sheen off derivatives,” said Rakesh Jha, director of MoneyTime Advisors.

As the telecom operators face stiff operating challenges in the face of rising competition and dwindling call tariffs, MF holdings in telecom companies have fallen by around 38 per cent from nearly Rs 6,200 crore to less than Rs 4,000 crore. IT-hardware firms have seen MF holdings drop by 60 per cent to Rs 400 crore. Fund houses’ holdings in cement and petroleum products companies has seen a 13 per cent drop since September 2009.

“In February 2010, large-cap funds reduced exposure to IT, telecom, FMCG, and cement. Mid-cap funds have also cut exposure in engineering, IT, telecom and auto,” said Yogesh Radke, an analyst with Edelweiss Securities.