Mutual funds shun TCS, ICICI Bank, Avenue Supermarts in April

Mumbai: Even when the market rose 6.65% in April, mutual funds’ top stock sales in the month in the large-cap space included software exporter Tata Consultancy Services Ltd (TCS), private lender ICICI Bank Ltd. and supermarket chain Avenue Supermarts Ltd.

Mutual funds invested a net of Rs9,435.64 crore in Indian equities in April, data from Securities and Exchange Board of India (Sebi) showed.

This was in light of slowing down of gross inflows into equities schemes. However, redemption also came down from a month before, leaving the net inflows more or less in line with that in March.

TCS was the most sold stock as fund houses locked in gains after it rallied nearly 24% in the month of April, and joined the league of $100 billion market capitalization. Fund managers collectively, sold Rs1,750,27 crore worth of TCS stock in April, data from Value Research India Pvt. Ltd. showed.

On 19 April, TCS posted stellar March quarter results that beat analyst estimates both on revenue and profitability. The strong growth for the quarter came on the back of thirteen straight quarters of underperformance.

“Most fund managers are under pressure, and are wary of market valuation in general,” said Dhirendra Kumar, chief executive of Value Research, a mutual fund analytics firm.

“If you look at valuation gap of Infosys vs TCS, they seemed to have jumped where more value was visible,” added Kumar.

At the end of April, while Infosys traded at 16.75 times 1-year forward earnings, TCS traded at 22.79 times 1-year forward earnings, data from Bloomberg showed.

“IT is going through a complete re-rating. There is strong business revival. They are able to fight back on the revenues from digital business. They have more automation than before. The once-broken pieces are now falling in place,” said Dipen Sheth, head of institutional research at HDFC Securities, adding that the depreciating rupee is the last booster for the otherwise recovering industry.”

“Infosys is much cheaper than TCS and so the churn seems to have taken place in its favour, given the big changes in the company at the top level,” added Sheth.

Infosys Ltd., the country’s second-largest software exporter was the most bought stock by mutual funds as they stocked up Rs1,404.94 crore worth of stocks.

For ICICI Bank, the alleged corporate governance issues have deterred fund managers, who sold Rs843.08 crore worth of the bank’s shares. The allegation relates to a loan to Videocon Group, whose controlling shareholder co-founded a separate company with the husband of ICICI Bank CEO Chanda Kochhar. A significant portion of the loan has since become non-performing.

“The noise around the falling standards of governance, and issues with leadership, led to an erosion of faith on the part of investors,” said Sheth of HDFC Securities.

Avenue Supermarts, the top performing debutante in recent times, also witnessed profit-booking by fund managers, after the stellar run. Fund managers trimmed some of the positions and sold Rs316.97 crore of the stock in the month.

“Avenue Supermarts, also had run up a lot and stretched valuations seem to have been a driver that prompted mutual funds cut some holdings,” said Kumar of Value Research.

The parent of supermarket chain D-mart, has seen its stock jump 400% since its debut on 21 March 2017.