Team Navneet Munot continues to load up on midcaps & smallcaps

NEW DELHI: As the broader market indices rallied in August, money managers at India’s largest mutual fund house bagged a number of quality names from the midcap and smallcap segments, as opportunities dried up in largecaps.

Data compiled from Accord Fintech showed SBI Mutual Fund dumped big banking and telecom names and bought relatively smaller companies from financials and consumer discretionary sectors. The biggest addition in its portfolio in August was M&M Financial Services, of which it bought over 1 crore shares. It also added 10-55 lakh shares of Techno Electric, Bandhan Bank, Ramco Cements, City Union Bank, Cummins India, Emami, Torrent Power, Minda Corporation, Blue Star and Triveni Turbines.

Nifty Midcap added nearly 8 per cent in August while Nifty Smallcap advanced about 12 per cent compared with a 3-odd per cent gain in Nifty.

Navneet Munot, Chief Investment Officer of SBI Mutual Fund, is banking on superior earnings performance by India Inc for long-term gains and says after 10 years of underperformance by equities versus bonds, a revival in corporate profits should turn the tide over the next few years.

But he has cautioned that the legroom for growth may not be large in the near term. “After the recent surge both equities as well as bond yields, the attractiveness of valuation has shrunk, with yield spread going back to historical medians. While polarization is just reversing in favour of smallcaps and midcaps and that space remains attractive, it is unlikely that these stocks will continue to rise in the wake of a near term market pullback,” he said.

Among largecaps, the fund house bought 94 lakh shares of ICICI Bank, 48 lakh shares of NHPC, 47 lakh shares of Axis Bank and 13 lakh shares of Tech Mahindra from largecap space during the month. Fund managers at SBI MF, who manage in excess of Rs 4 lakh crore cumulatively, sold 8-42 lakh shares of SBI, PNB, GAIL, Vedanta, TCS, Eicher Motors, Bharti Airtel and Kotak Mahindra Bank. The fund house had sold stakes in most of these companies in the previous month as well.

Among PSU banks, SBI currently has most buy calls, but constant underperformance of the stock has made analysts look beyond it. “For the amount of money you are going to spend on SBI, you can buy two-three of these really small private sector banks like Federal Bank and IDFC First Bank. These are not small finance banks, but full service commercial banks. So even within the banking space I am sticking to smaller private sector banks,” said Rajat Sharma, Founder & CEO, Sana Securities

The selloff in largecaps came in the backdrop of a plunge in inflows to equity funds, which dropped for the fifth straight month in August. Forced by that, domestic fund managers sold shares worth a net of Rs 11,000 crore during the month.

SBI MF also took new positions in Balrampur Chini Mills, Finolex Industries, Persistent Systems, Phoenix Mills, Shreno, SAIL, V-Guard Industries and VST Industries while completely exiting Dynamic Technologies. It should be noted that some of the buying and selling in shares mentioned above might have been done by passively managed index funds.