Wary mutual funds dump once-fancied stocks

Almost 150 companies that figured significantly on the portfolio of mutual funds a year ago have vanished from the lists, and hardly find a place in any of the equity mutual funds in March 2009. Essar Oil, Spice Communications, Ispat Industries, Omaxe Ltd and Bata India are among companies that were hot but now are not.

Apart from sectoral performance or economic factors, companies are now also closely watched by fund managers on conduct after Satyam Computer Services was hit by India’s biggest corporate fraud.

“Post-Satyam, mutual funds have been wary on the corporate governance issue and they have exited from companies that have witnessed any such issues in the past,” said the head of a large brokerage house, on condition of anonymity. “Also in the current economic scenario, mutual funds want to remain invested with stronger and stable companies.”

A market expert who did not wish to be identified said, “There have been huge number of resignations of independent directors from the boards of some companies, raising alarm bells in the minds of fund managers
and forced them to exit such companies.”

As the real estate and construction sector witnessed pressure from low demand and rising input costs, high-profile players such as Omaxe, Parsvnath Developers, Sobha Developers and many other firms saw mutual funds cutting their exposure to them.

“There has been a shift from retail, construction and real estate and automotive sectors. It has been done to keep the mutual fund portfolio less risky,” said Prasunjit Mukherjee, CEO, Plexus Management Services, which has tracked the changes in portfolio between March 2008 and March 2009.

The retail slump has hit firms such as Bata India, Vishal Retail and Piramyd Retail. Large capitalisation firms, usually favoured by funds, have also been dumped.Essar Oil has a market cap of over Rs 21,000 crore while Spice Communications and Ispat Industries have market caps of Rs 4,105 crore and Rs 1,728 crore respectively.