Moneylife’s study of the pattern of stock picks by mutual funds’ equity schemes finds that stock picks are highly concentrated among a few hundreds with portfolios mimicking each other.
The study also underlines the lack of depth and diversity in Indian markets There are 1,477 stocks listed on the National Stock Exchange and 4,946 stocks listed on the Bombay Stock Exchange, but mutual funds find only a few hundred of them as investment-worthy. Moneylife’s analysis of equity diversified schemes of mutual funds as on December 2009 shows that 203 schemes of mutual funds have just 659 stocks in them. The other key findings of the study are:
• Funds are mimicking each other’s portfolios. Just a handful of large-cap stocks are present in most of the funds. At the top of this list of fancied stocks as on 31 December 2009 is ICICI Bank, which appears in 130 schemes across 203 equity diversified growth schemes. This is followed by Reliance Industries and Infosys Technologies, which have made an appearance in 125 and 120 schemes respectively. Oil and Natural Gas Corporation (ONGC) and State Bank of India (SBI) round up the top-5 popular stocks. Of the 203 schemes, 113 currently have exposure to ONGC, followed by SBI which is a favourite among 108 schemes.
• Most schemes are dominated by mega-cap and large-cap stocks. Of the 659 companies, ITC, Bharti Airtel, Larsen & Toubro, Tata Consultancy Services and Bharat Heavy Electricals are also among the top 10 popular stocks. Banking and engineering sector companies are currently among the favourites of most equity diversified schemes.
• The companies that found the least preference with equity schemes include Gayatri Projects, Great Offshore, JK Lakshmi Cement, Mahanagar Telephone Nigam Ltd (MTNL) and National Aluminium Company (NALCO).
• Our study also finds that within these 659 companies, 434 companies make an appearance in 10 or fewer equity schemes; clearly, in that case, the investible sphere shrinks further to a mere 250-odd stocks. Of the remaining 225 companies in the fund portfolios, only 39 companies appear 50 or more times, while the number of companies appearing in 25 or more schemes are a little over 100. This is further evidence of the concentrated and highly skewed nature of stock picks across fund schemes.
• The skew of the fund is evidenced by the fact that of the 659 companies in the fund portfolio, 168 stocks appear in a single scheme and 71 stocks appear in two schemes.
• A total of 203 schemes had 8,542 stocks in all schemes put together. Therefore, the average portfolio size is of 42 stocks and yet the total universe of unique stocks was 659.
• The fact that only 659 companies make up the portfolio across 203 equity diversified growth schemes underlines the apparent lack of depth and diversity in Indian capital markets.
In short, after seven years of robust economic growth in all segments and sectors; a long bull run and a plethora of initial public offerings (IPOs), Indian mutual funds have a very small list of stocks to buy from. They prefer to buy the same stocks and have your money concentrated on a few large-cap stocks.