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MF schemes: Skewed, concentrated and similar

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.

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    Alok Bhola

    1 decade ago

    Anybody who knows anything about the Indian stock market should already know that even though total listed stocks number about 5000, there is no meaningful liquidity beyond top 600 - 700 stocks. Quite a few of the remaining are not even traded daily. Hence its not feasible for Mutual Funds to invest outside the universe of top 700 or so stocks.
    Further, no more that 100 stocks can be classified as large cap even by Indian standards. Hence, large cap oriented funds have their options limited to these 100 stocks anyways.
    Hence, the reason for the relatively smaller investment universe is inadequate availability more than anything else.


    1 decade ago

    Thanks good and useful analysis. Definitely our equity markets lack depth, if the fund managers are not ready to take risk what can we expect from an individual investor, this also shows HOW MUCH FUNDS MANAGERS WORK ;-)
    (just sticking to safe havens). Even most of the financial newspapers and magazines are merely wasting ink by typing just the news. NO ANALYSIS or fresh ideas, or original articles.


    1 decade ago

    Then he does not have to do much use of his s.picking skills. If u see what these so called MF experts, as we are made to believe, have delivered in last ten years. If I have remained a passive investor, my returns are more than theirs. Therefore I say thank u Sir. - Borkar


    1 decade ago

    this is absolutely true-fund managers act as mere brokers for few stock to pile in few amc's-this does not show their experstise-portfolios r mere duplications for many funds-so called expert fund managers just cant find right sectors or right stocks-may be due to lack of will or some hidden reason?


    1 decade ago

    So, the obvious conclusion seems to be that most fund managers are conservative and pick the most stable stocks. No wild flights. So, what's the problem with that? As a retired person with limited capital, I prefer it this way with regard to my own portfolio of mutual funds.
    Or have I missed the point? The article has just stated a fact. It has not said that what was happening was wrong and, if so, why it was wrong.

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