TomorrowMakers

The defensive sectors saw a considerable increase in the allocation of Mutual Fund assets at 26.3%. What does this mean for you and your investment choices? Find out now.

Equity Mutual Funds in Defense Sectors

Mutual Funds (MF) investments continue to be one of the most popular avenues for wealth creation, despite their very evident of associated market risks. However, one month into the new financial year, investors are relooking their investment strategy in light of LTCG and other changes in the tax structure.

Here’s a quick roundup of what’s been happening in the industry over the past month.

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Going on the defensive

The defensive sector (a sector that is resilient to declining and poor market and economic conditions. For example, utility industry like gas and electricity) showed a new high in the allocation of MF assets at 26.3%, indicating caution on the part of asset management companies (AMCs). Weightage of consumer-facing companies rose by 0.2% while healthcare and IT rose by 0.1% during the first month of the new financial year 2018-19.

April 2018 saw significant changes in the allocation pattern of MF assets. Some sectors that ranked high included cement, metals, automobiles, healthcare, and capital goods. While 15 schemes chose to increase investment in the capital goods sector, 11 opted for heavy investment in healthcare. Weightage of public and private sector banks, chemical companies, and oil and gas hovered around average.

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AMCs of 11 mutual funds showed preference for ITC – a defensive company that’s promised investors higher returns – raising its market capitalisation by nearly Rs 2500 crore. Motilal Oswal data revealed SBI (State Bank of India) to be a low-ranking stock for MFs in the month of April. Nine AMCs decided to offload SBI stock, bringing their m-cap down by Rs 1800 crore.

Related: Investing in Equities- Identifying the Best Plan for Your Financial Goals

The stock market effect

 

From a market perspective, four out of the top 10 stocks were from the financial sector. IT major Infosys saw an increase of over Rs 3000 crore in the month of April alone. The stock value rose by 5.7% and 14 of the top 20 mutual funds invested in this stock, perhaps driven by its stability.

Related: How debt and equity based mutual funds differ in risk

Considering the decline over the last two months of the previous financial year, April saw a new high of Rs 8 lakh crore in equity assets under management (AUM) on a month-to-month basis with an increase of 6.7%. On a month-to-month basis, Nifty registered a growth of 6.2% in April, which may account for the rise in the AUM equity component.

What emerges from the first month is an inclination towards stability rather than growth. What the rest of the year will bring in terms of mutual fund investments remains to be seen. However, going by initial reactions, the future seems to hold great promise for investors.