How the big funds invested in July

While every individual investor has her/his own investment idea it is nevertheless a good idea to know what the big boys (read Indian mutual funds) are doing.

Also, a look at the amount of money pulled out and invested in mutual funds by retail investors also helps you make a decision. The purpose of this piece is to give you a fair idea of what these two important pillars of the Indian stock market – the retail investors and domestic mutual funds -- did in the month of July.

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Let us first have a look at what people like you and me did as shown by mutual funds' assets under management, AUMs. AUMs show the amount of money that a mutual fund owns at a particular point in time. While a fall in AUMs is not a good sign, a rise in AUMs indicate that investors like you and me are putting more money into mutual funds.

Coming back to AUMs with mutual funds it was an even-steven kind of a thing with three mutual funds recording a gain in AUMs and the same number showing a fall. The average, however, indicates that investors on a whole pulled out money to the tune of 6 percent in July.

Interestingly, though, the benchmark BSE Sensex increased from 12,961 points on July 1 to 14,355 points -- a gain of 10.75 percent -- as on July 31 the last trading day of the month. This could be explained by the fact that domestic mutual funds bought shares worth Rs 1,412.50 crore in July leading to an increase in the Sensex.

Conclusion: While retail investors were a bit nervous due to falling stock prices in India and high oil prices domestic mutual funds showed their confidence by remaining net buyers. It also indicates that mutual funds saw value in some select few stocks and bought them with gusto.

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Now let us look at the micro picture to understand what our home-grown mutual funds did last month. The figures below highlight the shares that they liked and shares that they didn't.

Mutual funds' favourite stocks in July

~ Bank of India was one of the most sought after stock in the market by asset management companies, AMCs. There were 7 fund houses that bought this stock in the last one month. These were: Canara Robeco, DSP ML, Franklin Tempelton, HSBC, Pru ICICI, Lotus and Morgan Stanley.

~ HDFC Bank and Satyam Computers were 2 stocks that saw buying interest from 3 fund houses each. These included fund houses like Reliance, Lotus and ABN Amro.

~ Ashok Leyland was one of the most bought stock in the market in terms of quantity; 2 fund houses bought 4.64 crore shares of this company. While ING bought 1.7 lakh shares, Lotus bought 4.63 crore shares.

~ Indian Hotels has been bought in large quantities by one fund house namely Lotus AMC. The fund house bought 1.25 crore shares of the same last month.

Stocks that fund houses sold last month

~ Hindustan Oil Exploration saw a lot of selling by 6 fund houses namely Benchmark, DSP ML, JM, Kotak, Lotus and Sundaram. The quantity that these fund houses sold in aggregate was 15.27 lakh shares.

~ NDTV was another stock that witnessed selling by 5 fund houses out of which Reliance Mutual Fund was the highest seller. It sold nearly 19.9 lakh shares.

~ Escorts Ltd was yet another sold stock in terms of quantity; 63.30 lakh shares of Escorts were sold by Reliance Mutual Fund alone.

~ Dabur Pharma Ltd was another stock that saw a large quantity sold by Reliance Mutual Fund. It sold nearly 50 lakh shares of the company.

This love and hate relations of mutual funds also show what they like as far as individual stocks are concerned and what they don't.

However, mutual funds' love for large cap companies seemed to have remained intact in July. They continued to hold popular large cap stocks like Reliance Industries, Bharti Airtel, ICICI, Infosys and Larsen & Toubro. Incidentally, 141 mutual fund schemes hold more than 5 percent of their scheme corpus in Reliance Industries.

On a sector-specific front mutual funds have been betting on oil and gas and banks as promising sectors. Interestingly, as interest rates continue to move up, mutual funds have been consistently reducing their exposure to the banking sector for the last 2-3 months. This is because an increase in interest rates has a direct impact on profits banks make.

The table below shows the top five percentage wise holdings of mutual funds showing how confident mutual funds are in these sectors. Note that at 10.79 percent, their holding in the banking sector is still significant.

Conclusion: Mutual fund houses have expert managers who understand the Indian stock markets better than retail investors. While it is nobody's case that individual retail investors should follow in their footsteps it surely makes sense to watch they are doing.