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Mutual fund managers buy small- & midcap stocks

Here are a few companies which generated high interest from fund managers during the month.

Last Updated: Feb 13, 2020, 07.41 AM IST
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Mutual fund investors put in Rs 1,154 crore into large-cap oriented mutual fund schemes in January 2020, a little more than Rs 1,135 crore in December 2020.
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As flows into mid- and small-cap schemes in January showed a sharp jump, mutual funds made fresh purchases in companies that enjoy brand dominance, and have costs under control in industries with firm demand growth. Fund managers have shown high inclination towards investing in operationally wellplaced mid-and-small-sized companies in January. Here are a few prominent companies which generated high interest from fund managers during the month:

The Ramco Cements
Bought by: Axis MF
CMP: Rs 779
M-cap: Rs 18,348 crore

In January, cement prices rose close to Rs 10-20 per 50-kg bag in Andhra Pradesh, Telangana and eastern markets YoY. This increase in prices has transpired after a gap of eight months. This served as a good trigger to enhance exposure to the stock of The Ramco Cements which sells cement in the aforementioned regions. Ramco Cements should benefit from cost control, stable volume growth.

Quess Corp
Bought by: Franklin Templeton MF
CMP: Rs 579
M-cap: Rs 8,540 crore

Quess Corp has attracted high interest from fund managers due to sustained growth in all its major revenue streams, resulting in stable revenue growth. Analysts foresee its general staffing head count growing more than two times in four to five years. Besides, the stock's valuation, after a fall, has made the company quite attractive.

Narayana Hrudayalaya
Bought by: SBI MF
CMP: Rs 352
M-cap: Rs 7,180 crore

In the affordable healthcare space, Narayana Hrudayalaya has carved a niche for itself. In the past one year, there has been a turnaround in the company's profitability with its return on capital employed improving to over 18% at the end of the September 2019 quarter from 9% in the same quarter previous fiscal. Factors such as end of investment cycle resulting in higher growth in revenues, rising occupancy rates at its hospitals and lean cost structure will help.

CDSL
Bought by: SBI MF
CMP: Rs 292
M-cap: Rs 3,058 crore

A oligopoly market, diversified revenue stream with 35% annuity and 42% transaction linked, stable fixed cost, have attracted longterm investors to the company. An asset-light model with good cash generation and high-return ratios are an added plus for investors. Future opportunities like digitisation of academic records, depository services to unlisted companies and insurance and commodity repositories give room for diversification.

Bharti Airtel Emerges as Favourite
Bharti Airtel has been a top pick as the company is seen as a big beneficiary of shrinking competition in the country's telecom sector. Presently, 45% of its subscriber base is 4G network, which means there is more scope for expansion for the company. According to CLSA's estimate, India’s smartphone user base is expected to expand to 507 million by March 2022 from 396 million at the end of 2019. Besides this, the company's December 2019 quarter operational performance has been encouraging. In the quarter, the company added 20.4 million 4G subscribers. This has been the highest-ever quarterly rise in 4G users for the company. This has given confidence to analysts that the company is not only likely to gain more 4G subscribers but also be able to retain its revenue market share. Analysts also point out to the company's leverage which is relatively better than its peers. According to analysts' estimates, the company's debt to EBIDTA is expected to come down to 3.3 in FY20 from 4.9 in FY19. Analysts believe after the tariff hike in December the company may opt for further hike in tariff. The full impact of these hikes would be seen in the financials in the next two quarters.

Infosys, Hindustan Unilever and L&T Draw Interest Among Large Caps
Mutual fund investors put in Rs 1,154 crore into large-cap oriented mutual fund schemes in January 2020, a little more than Rs 1,135 crore in December 2020. Fund managers used the inflows to add to their positions in Infosys, UltraTech Cement, L&T and Hindustan Unilever among others.

After a turbulent 2019, fund managers, who were underweight on Infosys, increased their purchases after the top management got a clean chit over allegations of misgovernance and analysts believing the company will grow faster than anticipated in the current year. Fund managers also found value in L&T after it retained its FY20 guidance despite December quarter results falling below analysts’ estimates. With most brokerages maintaining their 'buy' ratings as valuations are low, the stock found many buyers.

Fund managers selectively bought Hindustan Unilever as they believe cost savings, focus on premiumisation and margin improvement will pay off in the future.
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