Top fund houses like HDFC, ICICI Pru log out of banking, capital goods, bet on infrastructure
Top mutual fund houses such as HDFC, ICICI Pru, Reliance MF and SBI Funds Management, sold large-cap bank and capital goods stocks like SBI, L&T.
They bought into real estate and infrastructure companies, preferring companies with lighter balance sheet, steady rental income, strong cash flow, and assets that can be monetised easily.
Many investment managers also believe that India’s recovery is still a few quarters away. “The numbers for the first quarter of this fiscal were a mixed bag. Certain companies have disappointed, especially those in banking and some in domestic cyclical sectors,” said Mahesh Patil, co-chief investment officer at Birla Sun Life MF, which manages assets worth over Rs 98,000 crore. “Though defensives continued to show decent growth and have outperformed a bit.”
Funds houses have selectively focused on sectors such as private banks, telecom and technology, encouraged by their results and earnings visibility. They bought ICCI Bank and HDFC Bank while cutting exposure in PSU banks on growing fears over bad loans.
Within the telecom space, Bharti Airtel was the top choice as investors continued to bet on higher revenue streams from data. TCS and HCL Tech were seen in the shopping list of fund managers as the companies continued to deliver higher earnings on the back of strong order flows from the US market. Among the infrastructure companies, GMR Infrastructure, Gammon India, Punj Lloyd, Jaiprakash Associates and Adani Power have also generated considerable buying interest.
Sankaren Naren, chief investment officer at ICICI Mutual Fund, and whose fund house has invested in Prestige Estate Projects, said, “We are comfortable investing in select real estate companies which have steady rental income and have relatively lighter balance sheets compared with their peers.”
Mahesh Patil believes that the infrastructure theme is likely to benefit in the next 3-4 years, given the government's resolve to clear delayed and stuck projects. “More so, there’s hope of interest rates coming down in the next six months as inflation pressures have eased. In such a situation, infrastructure companies with relatively lighter balance sheet and good lucrative assets that can be sold off, provide good investment options.”
Rental income of these companies also offered comfort to fund managers while buying into real estate companies such as Sobha Developers which have a reasonably good presence in the commercial segment. According to a Goldman Sachs analysis, Sobha Developers is estimated to be trading at debt to Ebidta of 1.8.