INSUBCONTINENT EXCLUSIVE:
By Bhavana AcharyaAfter cutting back on exposure to software stocks last year, equity funds have picked up the sector again
In the process, funds managed to catch the strong rally in software stocks
Earlier in 2017, equity funds had cut exposure to the sector amid growth troubles that these companies were going through.
However, with the
sector largely sitting out of the 2017 rally, valuations became comparatively more reasonable
software share at 8.13 per cent of the equity AUM in June 2018 (latest available data)
Six months back in February 2018, it was 6.9 per cent
In June last year, the share of the sector in equity AUM was just 6.6 per cent
The rising share of the IT sector is also partly due to a rise in stock prices; in terms of market value, software AUM has risen 74 per cent
between June last year and June this year.
Largecap funds are wont to hold software stocks given that the index features a good number of
them and since it forms a sizeable share of the index
Even so, around 70% of the large cap funds have increased the share of software in their portfolios
About half the funds are even overweight on the sector compared to the Nifty 100 index.
In funds that invest across market capitalisations
(including categories such as value, dividend yield, etc), nearly 80 per cent have upped software exposure
Because these funds can invest across market capitalisations, they may have preferred more midcap stocks which do not have a large software
Funds here were already more likely to be underweight on the sector
But with funds trying to increase largecap exposure and the relative promise in software, its share in these funds has been inching up
Just under half are overweight on the sector compared with the Nifty 500 index.
Preferred stocksMphasis is one share that has seen mutual
fund shareholding climb higher between June 2017 and June 2018, going by shareholding patterns
June 2018 quarter saw mutual funds hold 8.43 per cent of the shareholding, compared to the 6.4 per cent in the year ago period.
Other stocks
where mutual funds increased significant stake include TCS, Infosys, Persistent Systems, eClerx Services, Cyient, and KPIT Technologies
Barring a few such as eClerx Services, HCL Technologies, or Wipro, most software stocks have gained
Some stocks doubled in the past year and many have gained over 20 per cent in the year to date.
(Bhavana Acharya is Deputy Head of Mutual
Fund Research at FundsIndia.com.)
