Fund managers bought 310 beaten-down stocks in Q2; time to go bottom fishing?

Benchmark indices have fallen more than 10 percent from their highs, and for the year, Indian market has turned negative but the big carnage has been seen in individual stocks. Most fund managers are using the opportunity to buy quality stocks.

For the quarter ended September, fund managers increased their stake in as many as 310 stocks which have a market capitalisation of more than Rs 1,000 crore and have fallen up to 70 percent so far in 2018.

Stocks in which they raised stake include Manpasand Beverages, Infibeam Avenues, Simplex Infrastructure, IIFL Holdings, JM Financial, Navkar Corporation, Indian Bank, Symphony, Kajaria Ceramics, Dilip Buildcon, Greenply Industries.

Most analysts agree that investors should look at the beaten-down stocks for their portfolio but the time horizon should now be 1-2 years. Picking the right stock will be more important because not every stock will qualify as a sound investment.

“While it may be difficult to call a bottom, for those investing with a one-year horizon or longer, it is a good time for bottom fishing. Looking for beaten-down stocks is a good starting point, but ultimately a stock-buying decision has to be based on valuation vs fundamentals,” Vivek Ranjan Misra- Head of Fundamental Research at Karvy Stock Broking.

“In general, we believe that in aggregate, the buys made during this period should deliver good returns over a one to the two-year horizon,” he said.

We have collated a list of 20 stocks out of 310 which plunged up to 70% in 2018:

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Asset base of mutual funds rose to over Rs 24 lakh crore in the July-September quarter, a 14 percent surge from the year-ago period, despite sell off seen in equity market. The S&P BSE Sensex slipped more than 2,000 points in September and a similar downfall is expected by the end of October.

The asset base of the industry, comprising 41 players, was Rs 23.4 lakh crore in the preceding three months, showing a growth of just 2.5 percent on a quarterly basis, according to the data by Association of Mutual Funds in India (AMFzi).

However, tracking weakness in equity market, MF AUM dipped slightly in September but equity funds continued to see inflows. Liquid or money market funds saw outflows to the tune of Rs 2.11 lakh crore in September as compared to inflows of Rs 1.71 lakh crore in August.

Despite market volatility and the credit event, inflows of Rs 11,172 crore in equity funds is very encouraging. It looks like fund managers are using the opportunity to increase allocation towards quality stocks.

“Equity markets are very volatile due lot of internal and external factors and in such a volatile environment it is not easy to stick to the same strategy. We as a fund house are very selective in terms of picking sectors and avoiding certain sectors,” Yogesh Patil, Fund Manager-Equity at LIC Mutual Fund told Moneycontrol.

“So it is better to look fundamentally strong & growing companies, where you want to invest rather than taking a call on the overall market,” he said.

Sticking to quality, fund managers reduced their stake in as many as 270 companies which have fallen up to 80 percent in 2018 which include names like PC Jeweller, Jet Airways, SREI Infra, HCC, BEML, Dewan Housing, Syndicate Bank, Tata Motors, Motilal Oswal, Apex Frozen, Union Bank of India, Bank of India, Avanti Feeds, The South India Bank.

Mutual Funds have been getting consistent flows on a monthly basis despite steep correction in September and October. But, experts fear that if the selling pressure continues, the SIP flows might get impacted.

“The SIP flows may start getting impacted if the markets continue to remain depressed. Generally, small investors do not have the appetite to see negative returns. If the market corrections are fast and quick, the investors continue to stay in the markets because they do not fully feel the impact of those corrections,” Raghvendra Nath, MD at Ladderup Wealth Management told Moneycontrol.

“But, if you look at the current markets, the weakness is continuing for the better part of this year. There are no immediate triggers for the markets to bounce back. In such scenario, the fresh SIP creation would slow down and then some of the investors could also stop their SIPs,” he said.

Here is a list of top 20 stocks out of 270 in which fund managers have reduced their stake in the September quarter:

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