Stocks with Highest Allocation in Equity Mutual Funds
In this article, we are going to see the 10 most favourite stocks of mutual funds considering data as on August 2019. These 10 stocks are having highest allocation in equity mutual funds.
10 Most Favourite Stocks of Mutual Funds
- As far as the equity oriented mutual funds are concerned (funds having equity allocation), the total AUM as on August 2019 is around Rs.10.31 Lakh Crore.
- This AUM of Rs.10.31 Lakh Crore is contributed by :
- Pure Equity Funds
- Hybrid Oriented Funds (with Equity allocation)
- Index Funds
- Index ETFs
- Sectoral Funds
- It means the above all type of funds have made investments in stocks worth of Rs.10.31 Lakh Crore in stocks.
- Indian Mutual Fund industry’s Average Assets Under Management (AAUM) stood at Rs.25.64 Lakh Crore in August 2019. So we can see, around 40% of the total AUM of the entire mutual fund industry is contributed from investments in stocks.
Which are the top 10 stocks contributing to this 10.31 lakh Crore AUM?
Not surprisingly, out of these 10 stocks, 6 stocks belongs to banking and financial services sector (3 corporate banks, 2 retail banks and 1 housing finance company). Out of the rest 4 stocks, one company each from IT, construction and Engineering, FMCG and diversified conglomerate.
1. HDFC Bank
- HDFC Bank is the stock having highest allocation in total mutual funds portfolios with equity allocation.
- Around Rs.71,142.1 Cr is invested in HDFC bank by all mutual funds. So, if we consider the total AUM of Rs.10.31 Lakh Crore, HDFC bank alone is holding almost 6.9% of total equity AUM of all the mutual funds. It shows the confidence all the mutual fund houses is having for HDFC Bank.
- HDFC Bank is a Retail-oriented bank. It has given the profit growth of almost 20-25% y-o-y since last 10 years, having a great consistency in profit growth numbers. For the same reason, HDFC Bank has been enjoying a premium valuation in the market.
2. ICICI Bank
- ICICI Bank is the second highest stock in terms of allocation by mutual funds in their portfolios.
- Mutual funds have made a investment of around Rs.59,465.4 Cr in ICICI Bank out of total Rs.10.31 Lakh Cr equity investment. Thus, ICICI Bank is holding 5.7% share in total equity mutual fund AUM.
- ICICI bank is a corporate bank. The NPA pressure of corporate banks from last 2-3 years is now fading down slowly. The profits of corporate banks are going to be promising in coming quarters. And with the improved earnings, Earnings per share of corporate banks and overall Sensex and Nifty Indices can go up in future. Thus, with these improved EPS numbers, price-to-earnings ratio can be rationalized in course of time.
3. Infosys Ltd.
- Infosys is the only one IT stock in 10 most favourite stocks held by mutual funds.
- It might be because of the higher percentage of promoter holdings (72.05%) in case of TCS. The free float market capitalization of TCS is very small. As a result, there is very little scope for the domestic institutional investors (DIIs) like mutual funds to buy the stock (TCS) and include it in their portfolios.
- On the other hand, in case of Infosys, promoter holding is only 13.15%. So there is very good scope for mutual funds to buy the healthy growth delivering IT stocks like Infosys. The total investment in Infosys is almost Rs.44,960 Cr with 4.3% allocation in total equity oriented funds AUM.
4. Reliance Industries Ltd.
- Reliance Industries Ltd (RIL) is a diversified conglomerate company. Equity mutual funds are having a consistent allocation in RIL.
- Since last 2-3 years, allocations in RIL have seen a decent growth with the current holding of Rs.40,312.3 Cr by equity oriented funds. This allocation in RIL contributes around 3.9% of total AUM.
- Reliance Industries stock is trading at a PE 19.31, which is higher than its 3 years, 5 years, 10 years average PE ratio. With the improved earnings visibility from Reliance Jio and Reliance Retail, RIL is enjoying a premium valuation. Jio and Retail both the businesses are going at fast pace and both can come with IPOs in coming years.
- So, due to the very high free float of RIL and higher earnings visibility in future by the stock, equity funds are buying RIL and trying to increase the allocation of the stock in their portfolios.
5. Larsen & Toubro Ltd.
- L&T is a construction and engineering conglomerate player. Mutual funds are invested around Rs.33,281.3 Cr in L&T stock. While the % allocation of L&T is around 3.2% of entire equity AUM.
- L&T is a very good stock in terms of corporate governance, consolidated businesses growth(Financial Services, IT). L&T is delivering a consistent growth in its profits over the years. And therefore, it can be a good bet for the investors to hold the stock for their long-term portfolios.
6. State Bank of India
- SBI is the biggest bank of India not by market capitalization but from business point of view in term of credit/loans given in the market. The investment in SBI is around Rs.33,066.2 Cr by mutual funds with 3.2% allocation in the stock out of total equity exposure by mutual funds.
- Just like ICICI bank, SBI is one of the corporate banks with high earnings visibility. With the decrease in the provisioning (kept aside for NPAs from operating profits earlier), the profitability of the bank is increasing and will improve even more in coming quarters. So we can say that SBI is coming out and relieving from NPA pressure slowly.
- The current profitability of all corporate banks, which is around Rs.4,000 Cr will grow to almost Rs.80,000 Cr by FY2020-21. So we can clearly get the growth trend for the stock in future and this is the
7. HDFC Ltd.
- HDFC Ltd. is focusing on the housing demand in ‘Affordable Housing’ segment. It has a great opportunity in housing finance after the merger of Gruh Finance and Bandhan Bank.
- The company is having a consistent growth potential to deliver the profit growth in coming years. So, Domestic Institutional Investors like mutual funds are very positive about HDFC Ltd. The current holding in HDFC Ltd is around Rs.31,521.9 Cr, with almost 3% allocation in the total equity AUM of mutual funds.
8. Axis Bank
- Axis Bank comes under the corporate bank segment. Equity oriented mutual funds have invested around Rs.30,326.5 Cr in Axis Bank. The stock is having 2.9% allocation in entire equity AUM of mutual funds.
- Just like other corporate banks ICICI Bank and SBI Bank, the earnings visibility of Axis Bank is improving in near future due to the reduced NPA pressure. And in the revival phase of corporate banks, we believe Axis bank is running ahead of ICICI Bank and SBI Bank. So it is a very good opportunity for mutual fund houses.
9. ITC Ltd.
- ITC Ltd is a FMCG conglomerate company. The current holding of ITC Ltd is almost Rs.28,105.7 Cr, with the % allocation of 2.7% by the mutual funds of equity orientation.
- The major contributors are the Index funds and Index ETFs in this allocation of 2.7% for the stock. Because of high free float of the stock, it is mandatory for the Index funds and Index ETFs to have the allocation for ITC Ltd. Moreover, ITC Ltd is having a good weightage in the Sensex and Nifty indices which is beneficial for the stock to increase its holdings by the index funds.
10. Kotak Mahindra Bank
- Kotak Mahindra Bank is the one of the best banks in retail banking. It is a well-managed bank, with a great vision for future growths.
- Mutual funds have made a investment of around Rs.59,465.4 Cr in Kotak Mahindra Bank. Thus, the bank is holding 2.3% share in total AUM of equity-oriented mutual funds. And this allocation have seen a consistent growth by the mutual funds.
- As we all know, the promoters are required to reduce their holding as per the RBI’s regulations. So in this scenario, DIIs like mutual funds are very positive to increase their holding in Kotak bank once the free float will be available in the market.