Mutual funds exposure to auto stocks at 17-month low

The review includes data from India’s top 20 domestic MF houses which account for about 97% of the industry in terms of assets under management.

Auto companies are facing tough business challenges due to supply disruptions and high commodity prices due to the pandemic. Short supply of semiconductors is expected to impact sales and production in the near future. Analysts at ICICI Securities said a hike in prices, rising fuel costs and possible implementation of the new bumper-to-bumper insurance regulation could limit consumer spending.

Analysts said overall retail volumes were slightly better in August on the back of a gradual recovery in demand and better consumer sentiment, while wholesales were lower due to lack of production for some segments.

“Given the gradual recovery in the COVID scenario, we expect some recovery in retail demand across sectors in the near term, though the pace of recovery will be somewhat slow. While we expect volumes to improve over the next two months, there remains uncertainty over festive demand at the start of Q322. Apart from containing the incremental Covid caseload, rainfall till September-end will decide the demand scenario,” said Reliance Securities.

However, the approval of the Union Cabinet on Wednesday ₹26,058 crore Production Linked Incentive (PLI) scheme for auto, auto-components and drone industry is expected to lift the auto sector.

Other sectors that saw cuts by mutual funds in August included metals, healthcare, public sector banks, consumer durables and cement.

Net inflow of Equity Mutual Fund schemes received ₹8,056.80 crore in August, down 61.15% ₹20,742.77 crore in July as per the data of Amfi. However, fund managers bought non-banking financial company (NBFC) shares, raising the sector’s weight to an 18-month high of 7.9%. This shows an increase of 50 bps month-on-month and 110 bps year-on-year.

“The sector is now ranked third in the allocation of MFs, it was sixth and fourth a year and a month ago. “The technology continued to scale new heights as its weighting rose to 12.1%,” said Deven Mistry, analyst at Motilal Oswal Financial Services.

Top stocks bought by MFs in August were Chemplast Sanmar, ICICI Bank, Nuvuco Vista, TCS, SBI Life Insurance, HDFC Bank, ITC, State Bank of India, Lupine and HCL Technologies. Data analyzed by Edelweiss Alternative Research shows that they mostly sold to Infosys, Tech Mahindra, Bharti Airtel, Tata Steel, Tata Consumer Products, SAIL, HUL, Eicher Motors, Cipla and SRF.