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Mutual funds lock gains in RIL stocks in June, SBI top buy

LiveMint logoLiveMint 17-07-2017 Ami Shah

Mumbai: Reliance Industries Ltd (RIL) was the most sold stock by domestic funds in the month of June as they locked in gains after a strong rally in its shares.

Financials continued to be the stocks most bought by mutual funds as they placed their bets on the long-term growth story of Asia’s third-largest economy.

According to data from Morningstar, mutual funds sold a net of Rs1,410.97 crore of RIL shares in June, trimming the fund industry’ stake in the stock by 11.6%.

Since the start of 2017 the year to 30 June, RIL stock had jumped 27.79%, its best performance in the same period since 2009. Currently, it is the most-valued Indian company with a market capitalization of Rs5.04 trillion

“Fund managers did accumulate Reliance (RIL) in the earlier part of the year, and it looks like they booked gains,” said Kaustubh Belapurkar, director of fund research at Morningstar Investment Adviser India Pvt. Ltd.

Others shared the view.

“In the case of RIL, I think it a just a profit booking strategy. I don’t think fund mangers are exiting the stock,” Vidya Bala, head of mutual fund research at Fundsindia.com.

It is still the ninth-most held stock by mutual funds. They held Rs10,902 crore of the stock, as of 30 June.

Even as RIL, which has businesses ranging from refining and retail to telecom, is in a sweet spot with most businesses doing well, the gross refining margins (GRMs) of its refining unit may be subdued in the June quarter as compared with earlier expectations owing to inventory loss as crude oil prices took a hit.

On the other hand, top lender State Bank of India (SBI) was the stock most bought by these mutual funds. Fund houses bought a net of Rs3,330.08 crore of SBI shares in June.

Top private-sector lender ICICI Bank Ltd was the second-most bought stock by mutual funds in May; they purchased a net of Rs2,938.41 crore of its shares in the month.

“Funds have been accumulating SBI, but it was not among the top bets. Among the PSUs (public sector undertakings), SBI is the only one the managers are buying. SBI is better placed as compared to other PSU banks in terms of the NPAs (non-performing assets),” Belapurkar said.

“RBI (the Reserve Bank of India) cracking the whip on bad loans is a plus,” added Belapurkar

In mid-June, RBI directed creditors to begin bankruptcy proceedings against 12 defaulters representing about 25% of the gross bad loans in the banking system.

Indian banks are sitting on a stressed asset pile of close to Rs10 trillion; of this, gross bad loans account for Rs7.7 trillion and the rest are restructured loans.

According to Bala of Fundsindia.com, there has been quite a divergent trend in the approach of fund managers, with a section of them opting for cyclical stocks, as they believe that post demonetisation and the Goods & Services Tax Act, there will be a pick-up in economic activity, while others played the consumption theme.

“This explains the huge interest in SBI and ICICI Bank, as these fund managers preferred corporate-focused banks, to play the cyclical theme,” said Bala.

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