MFs buy big amid market correction in October, target top Nifty stocks
FIIs sold over Rs 94,000 crore in October, while MFs made net purchases exceeding Rs 92,000 crore in local equities, according to NSDL data.
As Indian markets experienced corrections in October amid weak earnings, sustained foreign investor outflows and heightened geopolitical tensions in the Middle East; domestic mutual funds (MFs) took an aggressive stance, accumulating blue-chip stocks.
Foreign institutional investors (FIIs) sold over Rs 94,000 crore in October, while MFs made net purchases exceeding Rs 92,000 crore in local equities, according to National Securities Depository Limited (NSDL) data. Major indices, including the Sensex and Nifty, each dropped over 7 per cent, with the BSE mid-cap and small-cap indices declining by more than 6 per cent and 3 per cent, respectively.
Around Rs 45,000 crore of MF purchases were concentrated in the top 15 Nifty stocks. Mahindra & Mahindra led as the largest acquisition, followed by HDFC Bank, Axis Bank, ICICI Bank, and the State Bank of India (SBI).
MFs invested Rs 6,840 crore in Mahindra & Mahindra shares, even as the stock saw a 12 per cent drop due to underwhelming second quarter (Q2) earnings. HDFC Bank saw inflows of Rs 5,756 crore, with Axis Bank and ICICI Bank following at Rs 4,115 crore and Rs 3,897 crore, respectively. SBI drew investments worth Rs 3,104 crore from MFs. In terms of performance, HDFC Bank rose marginally by 0.2 per cent in October, while Axis Bank fell 6 per cent, ICICI Bank edged up by 2 per cent, and SBI gained 4 per cent.
Kranthi Bathini, Director of Equity Strategy at WealthMills Securities, explained that MFs are investing in blue-chip stocks because these companies have strong business models, reliable revenue, and high liquidity. Despite short-term earnings pressures, their long-term earnings and cash flows are expected to remain solid, making them attractive for long-term investment.
Other blue-chip stocks attracting MF interest included Bajaj Auto, with inflows of Rs 2,924 crore following a 20 per cent decline after weak Q2 earnings, along with Larsen & Toubro (Rs 2,517 crore). Other stocks such as IndusInd Bank (Rs 2,511 crore), Tata Consultancy Services (Rs 2,400 crore), Hindustan Unilever (Rs 2,362 crore), Maruti Suzuki (Rs 2,354 crore), and Bharti Airtel (Rs 2,331 crore) also saw huge buying interest last month.
IndusInd Bank declined by over 27 per cent in October, Larsen & Toubro fell by 1.5 per cent, TCS dropped 7 per cent, Hindustan Unilever declined 14 per cent, Maruti Suzuki lost 16 per cent, and Bharti Airtel decreased by 6 per cent.
Deven Choksey, Managing Director (MD) of DRChoksey FinServ, cited that October’s market correction made quality stocks attractively valued, sparking interest from MFs as they deploy new investor funds. Although Q2 earnings were weak, he sounded optimistic about improvements ahead, with government spending likely to rise after assembly elections in Maharashtra and Jharkhand and boost earnings in Q3 and Q4, alongside the festive season. He reckoned that this is the right time to buy blue-chip stocks.
Beyond blue-chip stocks, MFs also participated in recent initial public offerings (IPOs). However, the total investment was lower than the overall IPO issuance volume. MFs invested around Rs 9,600 crore across five IPOs, out of a total of six IPOs launched in October with a cumulative value of Rs 38,686 crore. Hyundai received substantial interest with purchases amounting to Rs 6,999 crore, followed by Waaree Energies and Afcons Infrastructures at Rs 1,423 crore and Rs 1,023 crore, respectively. Smaller allocations included Rs 166 crore in Godavari Biorefineries and Rs 10 crore in Garuda Construction & Engineering.
The muted first half of financial year (FY) 2025 results increased the scope of further downgrades in the FY25 Nifty earnings per share (EPS) estimates. Analysts factor up to 3 per cent downward revision in the Nifty EPS estimate for FY25. Amid a setback in H1FY25, investors see some light in H2FY25 earnings on account of acceleration in government spending, a good monsoon, and a revival in rural demand. Analysts said consolidation may continue in the near term. However, the beaten-down value stocks may witness bottom fishing due to their potential outlook.
Going ahead, the focus will be the developments from the Donald Trump administration and its implications towards the emerging markets. The policy proposals are likely to add upward pressure on US inflation, which may impact the future Federal Reserve rate cut trajectory, they added.
Bymoneycontrol
