Defensive stocks lost favour to cyclicals in the quarter ended June 2014, with fund managers shifting focus towards sectors such as financial services, basic materials, consumer cyclical and industrials.
Financial services continued to be the most-owned sector in the portfolios of equity funds. The increased exposure was the result of not only higher stock prices, but also augmented buying of banking and financial services companies.
Positive developments like unchanged key policy rates, signaling the peaking of interest rates, and the likelihood of improved credit offtake due to perceived economic growth led to fund managers’ increased interest in the sector, according to Morningstar India.
“The elections had a major (positive) bearing on the stock market as well as fund managers’ choice of sectors. The BJP’s manifesto to bring in economic development propelled equity fund managers to shift money towards cyclical and sensitive sectors,” said Sameer Hassija, senior investment analyst, Morningstar India.
Banking stocks were frontrunners in this bull run. Of the top-5 popular stocks in the mutual fund portfolios, three were from the banking sector.
ICICI Bank continues to feature as the most popular stock in MF portfolios, followed by L&T.
IT giant Infosys, the top- held stock at the start of the year, dropped to the fifth place by the end of June. Consumer defensive major ITC saw its shares dumped as defensives are no longer the favourites.
Federal Bank featured as the most bought stock during the quarter. Consumer cyclical companies like Indian Hotels and Exide industries, too, witnessed sizeable accumulation.
The stocks that were most sold during the quarter
included blue chips like NTPC, ITC, Bharti Airtel, ONGC, Coal India and GAIL India.
Industrials pipped technology to become the second most popularly held sector, with allocation increasing from 12.5% in March 2014 to 14.7% by June 2014.
Equity funds’ exposure to technology dropped.
“Though the rupee continued to trade at a steady level throughout the quarter, underperformance of the technology sector vis-a-vis high-beta sectors like industrials, financial services, basic materials and consumer cyclical led to fall in exposure,” said Morningstar India.
Real estate continued to be the least favoured during the first six months of calendar year 2014. During the quarter, many small- and mid-cap funds with sizeable corpus increased their exposure to cash and cash-equivalents.