India equity funds add Wipro, TCS in 2013; dump HUL, SBI

January 16, 2014

An increased number of India’s equity diversified funds favoured technology companies such as Wipro and Tata Consultancy Services (TCS) among Sensex stocks in 2013, raising their bets on a sector that benefited from a depreciating rupee and improving demand from developed economies.

Nearly 160 of 322 such funds had investments in India’s No. 3 IT services provider Wipro in December as compared to 91 funds a year ago, more than doubling the collective stake held in the company, data from Morningstar India showed. India’s top IT services exporter TCS was part of 190 portfolios, up from 155.

A weak rupee and improving business from clients in the United States and Europe propelled technology stocks to new highs in 2013 — TCS registered a rise of 73 percent while Wipro gained 61 percent, outperforming the BSE IT index that touched a life high and ended 59.7 percent higher. In comparison, the BSE Sensex had risen 9 percent.

“With the (domestic) economy slowing down and high interest rates, obviously the allocation shifted towards all these sectors where the outlook was improving and earnings were being revised upwards,” said Mahesh Patil, co-chief investment officer at Birla Sun Life Mutual Fund that manages assets of more than $12 billion and has investments in both TCS and Wipro.

India’s diversified equity mutual funds rose 4.8 percent on average in 2013 but underperformed the Sensex for the first time in five years, Lipper data showed, as the performance of mid- and small-cap shares and financial companies weighed.

Other than IT stocks, fund managers also raised their bets on India’s No. 1 telecom operator Bharti and stocks such as Hero MotoCorp and NTPC.

As many as 227 equity diversified funds collectively held 130 million shares in the mobile operator in December, nearly 22  percent higher than the number of shares held a year ago. Bharti shares rose 4.1 percent in 2013, with bigger telecom carriers benefiting from reduced competition after several smaller players ceased operations following a court order on a telecom scandal.

Among stocks that exited various portfolios in 2013, India’s largest consumer goods maker Hindustan Unilever (HUL) led the list among Sensex stocks. In December, the stock was a part of 70 funds as against 122 earlier.

HUL’s parent company Unilever increased its holding in the company to over 67 percent using the open offer route in July in a transaction worth 2.45 billion euros ($3.34 billion), raising its bets on demand for consumer goods in Asia’s third-largest economy. HUL shares rose 8.7 percent in 2013.

A fund manager of a large-cap equity scheme with assets of more than 500 million rupees sold his portfolio’s 4 percent holding in HUL in 2013. The manager declined to be identified because of compliance norms.

“I dumped (HUL) after the open offer … at that time we felt we had a case of profit booking,” he said. “I’ve moved to other FMCG stocks”.

Fund managers also dropped State Bank of India from their portfolios, with 153 funds having stakes in India’s largest lender, down from 193 in end-2012.

Shares in SBI lost more than a quarter of their value last year, as the sector was hurt by rising bad loans and the central bank’s move to raise policy rates and hike short-term rates.

Birla fund house has been preferring private sector banks over public-sector lenders for some time, Patil said, adding that exposure to SBI was reduced last year.

ICICI Bank held its position as fund managers’ favourite Sensex stock, with 234 of 322 schemes holding the stock by end-2013, while Hindalco was the least held with 59 funds having exposure to the aluminium maker.

(Additional reporting by Nishant Kumar in Hong Kong; edited by Tony Tharakan. Follow Aditya on Twitter @adityayk and Tony @tonytharakan. This article is website-exclusive and cannot be reproduced in any form without permission)

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