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The trade secret that helped some multicap schemes shine in 2018 when others faded out

UTI Equity Fund came second, delivering 4.8 per cent return for the year.

, ETMarkets.com|
Updated: Jan 04, 2019, 01.01 PM IST
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IT and pharma are being seen as good hedge against poll-related uncertainty in 2019 too.
NEW DELHI: Calendar 2018 was devasting for India’s second-rung stocks, which proved a drag on most multicap equity funds. But a few of them still managed to beat their benchmarks for the year and the credit for it goes to banking and IT stocks.

Turns out, equity funds that had incrementally raised investments in banking and IT sectors and lowered exposure to the slowing auto sector through the year beat other schemes by a mile.

Nifty Auto index tumbled 25 per cent during 2018 against a 6.7 per cent rise in Nifty Bank and 23 per cent rally in Nifty IT indices.

IT and pharma are being seen as good hedge against poll-related uncertainty in 2019 too. Some analysts say even auto stocks may throw up many value buying opportunities after the recent correction.

Axis Multicap Fund delivered the category best return of 9.2 per cent (direct plan) in last one year compared with a 2 per cent fall in the benchmark Nifty500 Total Return Index and a 3 per cent rise in Nifty50. The category delivered a negative 6.3 per cent return for the year.

Axis Multicap’s top 10 holdings included five banking and financial stocks – namely HDFC Bank, Bajaj Finance, Kotak Mahindra Bank, ICICI Bank and HDFC. The fund steadily raised exposure to banking stocks, which accounted for 39.97 per cent of its total equity asset as of November 30, 2018 against 25.75 per cent as of December 31, 2017.

IT stocks now account for 8.19 per cent of the fund’s asset against 4.43 per cent in 2017. FMCG stocks, too, found favour. But allocation to the auto sector (as percentage of total assets) almost halved during the period.

UTI Equity Fund came second, delivering 4.8 per cent return for the year. This fund also had higher allocations to IT and pharma sectors, and had cut exposure to auto stocks.

Canara Robeco Equity Diversified Fund offered 2.2 per cent return for last one year, which is still good as similar schemes saw up to 20 per cent drop during the period. This fund allocated more towards IT and banking stocks, cut exposure to energy and held on to FMCG and construction sectors. It had L&T, RIL and ITC among its top 10 holdings.

In view of the elections ahead, there could be an increased allocation to sectors that probably do not have much of a bearing on the local economy or even on the government policies, V Srivatsa, EVP & Fund Manager for Equities at UTI MF, told ETNow last week.

“IT or pharma could be good hedges. From a valuation perspective, auto or even corporate-oriented banks could be considered. While valuations have increased moderately, such banks are still cheap on a 10-15-year basis. Our focus is more on sectors that you are getting at reasonable valuations from a medium-term perspective,” he said.

Ajay Bodke CEO & Chief Portfolio Manager PMS at Prabhudas Lilladher, says technology stocks have massively outperformed the market in last one year and most institutions now have reasonably large allocations to this space.

He finds IT stocks fairly valued and does not see much scope for further re-rating. “If, however, the market continues to remain choppy in the run-up to the general elections, IT sector could act as safe haven along with pharma,” he said.

He said eventually value buying will emerge in auto, where stocks have seen a sharp drawdown because of slowing demand, non-availability of ample credit from NBFCs and last year’s high base effect.

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