All IPOs were the preferred bet for Mutual Funds over secondary market in November

Mutual funds’ holding value at the end of November in newly listed companies stood at about Rs 3,300 crore even as they deployed Rs 1,700 crore in the secondary market

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With the indices near their all-time highs, the secondary market has been buzzing with activity and excitement about hitting fresh highs. This buoyancy in the secondary market kept investors in the primary market busy in November, which saw as many as nine new listings.

This was the most for 2022 and the fourth highest in a single month in the last 11 years, according to a report by Grant Thronton.

However, compared to the last year (2021), the primary market is lagging far behind. Year 2022 has seen 32 initial public offerings (IPOs) so far and $7.6 billion being raised compared to 53 IPOs in 2021 that raised $15.4 billion.

Mutual funds join the party

When the momentum is positive in the secondary market, IPOs attract a lot of interest from retail investors for various reasons who jump on the bandwagon in large numbers. But this time, mutual funds too joined the party and as per industry data, made their presence felt in all nine IPOs of November.

“Fund houses participated in all the IPOs with the November-end holding value far exceeding the total funds deployed by them in the secondary market during the month,” said a report from Nuvama Institutional Equities.

Mutual funds’ holding value at the end of November in the newly listed companies stood at around Rs 3,300 crore compared to the Rs 1,700 crore they deployed in the secondary market alongside foreign institutional investors (FIIs) who bought Indian equities worth Rs 34,900 crore last month.

Abhilash Pagaria, head, Nuvama Alternative & Quantitative Research, suggested that, “the reason for strong participation by mutual funds in all IPOs is that the Indian equities have become somewhat expensive after the recent run up and MFs saw better value in the primary market listings”.

Even though lump-sum investments in mutual funds have declined significantly, mutual funds continue to witness strong flows through systematic investment plans or SIPs, which have been growing consistently. This provided room for them to deploy funds in the primary market, Pagaria added.

At the end of last month, the mutual funds’ holding value in Global Health was Rs 980 crore, Archean Chemicals Rs 930 crore, Bikaji Foods Rs 530 crore, Fusion Micro Finance Rs 350 crore, Kaynes Technology India Rs 220 crore, Fivestar Business Finance Rs 140 crore, Keystone Realtors Rs 100 crore and in Inox Green Rs 50 crore.

Mutual Fund activity in November

During November, mutual funds bought into banking and index heavyweight, HDFC Bank the most. They deployed ~Rs 2,700 crore in India’s largest private lender. This was followed by Axis Bank which saw purchases worth Rs 1,370 crore and the newly listed Archean Chemicals was their third favourite with inflows of Rs 930 crore.

The stocks that lost favour last month included ICICI Bank where the mutual funds offloaded Rs 3,130 crore worth of shares, HCL Technologies Rs 1,600 crore and Kotak Mahindra Bank, which saw offloading worth Rs 1,420 crore.

“Interestingly, funds also used the opportunity to trim their holdings in MSCI Standard Index (Nov 22 entrants)”, said Pagaria. They reduced their holdings in Indian Hotels by Rs 880 crore, in Tube Investments by Rs 820 crore and in ABB by Rs 650 crore. “The holdings in these stocks were reduced as funds resorted to profit booking because the stocks generally see a strong run up in anticipation of the entry to the MSCI, one of the most widely tracked index, and once they become part of the index, they somewhat tend to lose steam”.

Among the midcap stocks, Delhivery, Max Financial, Bikaji Foods and PB Fintech were the key additions made by the mutual funds. However, they reduced their positions in BHEL, Ramco Cement, Gujarat Gas and PVR.

The key small cap additions were Archean Chemicals, Fusion Micro Finance and Kaynes Technologies. The key reductions during November were Praj Industries, GE Shipping, UTI AMC and Fino Payments.

Stocks on radar for the past three months

Mutual funds have made consistent additions in HDFC Bank, Hindustan Unilever, Bajaj Finance, Asian Paints and Nestle over the last three months. At the same time, they have been consistently reducing their holdings in ICICI Bank, LIC, Wipro, Grasim Industries and Varun Beverages.

“These are the stocks where MFs keep juggling their positions depending on the value they see in these stocks at a particular point”, added Pagaria

The midcap stocks that have found favour since September 2022 include Balkrishna Industries, Astral, Alkem Labs, Star Health & Allied Insurance and Tata Communications. Mutual funds trimmed their holdings in Aurobindo Pharma, Oracle Financial Services, Linde India, Aarti Industries and Thermax.

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