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When midcaps burnt, desi fund managers plucked these stocks in hordes

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NEW DELHI: June quarter shareholding patterns are out for nearly 1,000 listed companies and a few of them, mostly midcaps and smallcaps, show heavy buying by mutual funds in what was a poor quarter for these second-rung stocks. While top market analysts kept advising investors to stay away from midcaps and look at the largecaps instead due to better risk-reward tradeoff, domestic mutual funds appeared to have done the exact opposite and put much of the retail money in these second-rung scrips. Out of the 20 stocks where MFs raised holdings by at least 100 basis points, two-thirds happened to be either midcaps or smallcaps.

No sectoral bias was seen in this buying spree; it mostly looked like a stock-specific positioning. Mutual funds raised stake in auto ancillary maker Sandhar Technologies by 380 basis points to 10.4 per cent at the end of June quarter from 6.6 per cent at the end of March quarter.

The company is seen to be entering a high growth phase.

Karvy Stock Broking projected its sales and profit to grow 19.4 per cent and 54.4 per cent over FY18-20E.

Sandhar’s new joint ventures are expected to help it sustain growth beyond FY20. Mutual funds also hiked stake in multiplex operator PVR to 13.2 per cent from 9.9 per cent and in Vardhman Textiles from 14.2 per cent to 17.5 per cent New screen rollouts, potential consolidation, stabilisation of the theatrical window, second quarter content release plans and competition from over the top (OTT) media services are some of the factors that will be key for PVR stock going ahead, say analysts.

Vardhman Textiles’ share of revenues from the fabric division is likely to increase from 35 per cent, which is expected to aid the company’s operational performance. Data showed the BSE Smallcap index slipped 5.56 per cent in June quarter and BSE Midcap index 3.20 per cent even as the BSE Sensex climbed 7.44 per cent. There is significant value emerging in select midcap and smallcap names, said Ashwini Agarwal of Ashmore Investment. “This is a market more for bottomup investing, than topdown investing.

When we looked at individual companies back in December, I could find very little value in the market.

Today, I am excited about topping up some of our existing holdings.

There are exciting times from a bottom-up perspective," Agarwal said. MF holding in Ahluwalia Contracts (India), McLeod Russel India and TV Today Network rose by 3 per cent, 2.4 per cent and 2.4 per cent, respectively, during June quarter on a sequential basis. HDFC Securities expects Ahluwalia Contracts to report a 17 per cent drop in June quarter sales.

But the company's Ebitda margin is projected to expand 212 bps YoY to 12.8 per cent while adjusted profit may grow 11 per cent.

Emkay Global says the company has negligible debt and is on course to attain debt-free status by FY19 end. McLeod Russel is planning to sell 8-10 tea estates in India to reduce interest cost.

Higher contribution from international subsidiaries may also boost bottomline in the coming years, analysts say. IIFL is positive on TV Today Network, as the company is expected to achieve breakeven in the print vertical by FY20.

A cash-rich balance sheetmay provide expansion or acquisition opportunities, IIFL said. Karnataka Bank, Sterlite Technologies, Petronet LNG, Entertainment Network (India) and Mahanagar Gas are some of the other stocks where mutual fund holdings have gone up by 1.4 per cent to 2.1 per cent.

IFGL Refractories, Control Print and Genus Power Infrastructures also some a fair bit of MF interest during the quarter.

Most small retail investors are invested in smallcap and midcap stocks, and have seen 40-50 per cent losses in good names and 70-80 per cent in the not-so-good ones, said Pashupati Advani of pashupatiadvani@globalforay. “These investors should start doing homework now.

It is better to buy when everybody else is selling and vice versa.

This is the time when you are going to be rewarded,” he said.




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