Check out the small caps that attracted domestic mutual fund money last quarter

Indian stock market indices are consolidating around 6-7% below the record highs touched in October last year amid concerns of monetary tightening and an impending war situation in Ukraine.

Foreign portfolio investors (FPIs), or foreign institutional investors (FIIs), have been the driver of local bourses historically, but mutual funds (MFs) have also become significant in the last few years given the rush of local liquidity. In fact, the bull run over the past couple of years is largely attributed to the flow of cash into domestic mutual funds, who have in turn pumped in money into the stock market.

While most local fund managers have been voicing concerns about the state of valuations, quarterly shareholding data shows they pushed up their holding in hundreds of listed companies.

Our analysis shows, MFs bought additional stake in fewer large caps last quarter but were attracted to more mid-caps, showing their preference. If we step down in the market cap charts and look at their behaviour in the small-cap space, it seems they were almost neutral as the number of small caps in which they increased their stake (64) was almost the same number as the quarter ended September (60).

Interestingly, offshore fund managers were more bullish than local peers in betting on the small-cap space. Around 100 small-cap stocks saw FIIs or FPIs increase their stake in the quarter ended December 31.

Top small caps

If we consider the larger firms within the small caps where local mutual funds increased their stake last quarter, at top of the heap is FDC. It is followed by Mahindra Lifespace, Rallis, Minda Corporation, Suprajit Engineering, Craftsman Automation, Ingersoll-Rand, Greaves Cotton, TCNS Clothing, Man Infraconstruction, Karur Vysya Bank, Jamna Auto, PCBL, JK Paper, NCC, Sudarshan Chemical, Newgen Software and IFB Industries.

Other larger small-cap stocks with market cap of just $500 million that attracted mutual funds include Sansera Engineering, Rolex Rings, Dhanuka Agritech, Arvind, Mishra Dhatu Nigam, Strides Pharma, Sagar Cements, Ion Exchange, GE T&D India, PTC India, Bajaj Consumer and DCB Bank.

Several of these firms were also in the buy calls of mutual fund houses in the previous quarter. These include FDC, Strides Pharma, Jamna Auto, Man Infraconstruction and Craftsman Automation.

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Significant picks by MFs in small-cap pool

If we track stocks where MFs were particularly stoked and bought 2% or more additional stake last quarter, we get just six names. This compares with around 14 companies in the preceding quarter. In contrast, FIIs had pushed their holding higher in nine names, albeit less than half of the previous quarter.

The companies where MFs were especially bullish include Kirloskar Oil, Pokarna, PTC India, Thangamayil Jewellery, Arvind and Gokaldas Exports.

Notably, apparel exporter Gokaldas Exports and Arvind had also seen MFs up their holding over 2% in the quarter ended September 30.

Also read: Why small and mid-size MFIs have received an outlook upgrade