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0 In today’s stock market, we have seen heavy selling in mid-cap and small-cap shares, but frontline indices like Nifty, Sensex, and Bank Nifty are still trading near record highs. In such a scenario, when the stock market has been witnessing a sustained rally for a long time, it’s becoming challenging for mutual fund managers to find stocks that can outperform most indicators, especially when stocks are already reaching record highs. In reality, they perform better than the indicators that generate alpha returns.
According to stock market experts, mutual fund houses are also facing the challenge of finding stocks at low prices, even though they are available at reasonable prices in the IT and private banking sectors. The hope is that these sectors still offer attractive valuations, and there is enough room for them to go up in the near term. However, they have mentioned that these will be large-cap stocks in the mentioned sectors, which mutual fund managers might prefer.
The potential for a surge in IT and banking shares
Why mutual funds might consider IT and banking shares, Prashant Tapse, Senior Vice President (Research) at Mehta Equities, explained, “Mid-cap and flexi-cap funds allow fund managers to shift money from small-cap, mid-cap, and large-cap to capitalize on market volatility. In times of market instability, cap stocks are favored by fund managers. In the current bullish trends, despite the rapid sell-off in mid-cap and small-cap shares, frontline indices like the Nifty are still trading near record highs. Therefore, when it becomes challenging for mutual fund managers to find stocks, mid-cap and small-cap shares may compel AMC managers to look for safe bets.
Hence, they can consider IT and private banking shares because they are still available at reasonable levels, and they have enough room to move higher in the short term.” However, he said that these would be large-cap stocks in the mentioned sectors that mutual fund managers would prefer.
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Prospects for IT and private banking shares
Despite the Indian stock market trading at record highs, as investors search for opportunities in IT and banking shares, Apurv Sheth, Chief Market Perspectives and Research at Samco Securities, stated, “There is ample room for further expansion in Nifty, especially as we enter the election year.” The rally is fully open. However, one should keep in mind that the sectors that pushed Nifty to 20,000 might not be the same ones to push it to 21,500. Nifty is still trading more than 17% below its all-time high. If the market is to go significantly higher from current levels, heavyweight sectors like IT cannot be left behind. Bank Nifty is also trading at relatively cheap valuations. Thus, sectors like banks and IT could be ones that take the indices higher from current levels.”
Mutual fund options in today’s stock market
Speaking of potential steps that mutual fund managers typically take when there’s a bullish rally due to market participation, Arun Kejriwal, Founder of Kejriwal Research & Investment Services, said, “When the stock market is in a bullish trend, mutual fund asset managers have options, which they usually take – increasing exposure in stocks where they have lower exposure than the exposure limit, finding stocks available at reasonable levels, reallocating liquidity for the short term, or simply keeping the money in hand if none of these options is suitable.”
Stocks worth considering today
However, Prashant Tapse of Mehta Equities suggested that AMC fund managers might look for large-cap stocks in the IT and private banking segments, “After shutting down the growth CRAR, private banks are expected to have an almost 100 bps benefit in pure margin. Therefore, with this RBI move, they hope for improvement in margins and ROEs. In this way, investors can consider HDFC Bank and ICICI Bank shares to park their money for generating alpha returns in the next phase of the mutual fund rally.” He advised long-term investors to consider stocks like Bank of Baroda and State Bank of India (SBI) if they are in search of PSU bank shares.
Arun Kejriwal, an equity specialist, suggested that IT stocks are also available at reasonable levels, and mutual fund managers looking for long-term wealth could consider TCS and Infosys, among other leading IT stocks.
Disclaimer : The above insights and recommendations are from individual analysts or brokerage firms and not from Mint. We advise investors to consult with certified experts before making any investment decisions.
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