Which small-cap stocks were mutual funds buying in Q2?

Indian stock indices, which had scaled new highs a few weeks ago, are now consolidating after a correction of nearly 5% in recent days. The bull run of the past few months is largely attributed to the flow of cash into domestic mutual funds, which pumped in a massive amount of money into the stock market.

Indeed, domestic mutual funds have become very significant players in the local stock market over the last few years given the rush of local liquidity.

While most local fund managers have been voicing concerns about stock valuations, quarterly shareholding data shows they pushed up their holding in more than 200 listed companies. Of those, they increased their stake by two percentage points or more in around 18% of the companies.

In particular, they hiked stake in as many as 129 companies that have a valuation of $1 billion or more last quarter. In comparison, foreign institutional investors increased their stake in 89 such companies.

However, that has not stopped fund managers to also park some extra money with high beta small-cap stocks. The MFs pushed up their holding in around 60 small-cap companies last quarter, or under a third of the total.

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 September 30.

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 Craftsman Automation, the auto component maker that went public earlier this year.

Craftsman made a weak debut with its shares listing at a discount of 9.4% from the IPO price. But it has since then climbed over 50%.

Other larger small-cap stocks with a market cap of $500 million or more that attracted mutual funds include FDC, Great Eastern Shipping, Greenpanel, Strides Pharma, Jamna Auto, Arvind Fashions, Bharat Rasayan, Equitas Holdings, Esab India, Shoppers Stop, Man Infraconstruction and Somany Ceramics.

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 around 14 companies. In contrast, FIIs had pushed up their holding in two dozen small-cap stocks.

The companies where MFs were especially bullish include apparel exporter Gokaldas Exports, Rolex Rings, Equitas Holdings, Greenpanel, Esab India, Wendt India, Arvind, Kolte-Patil, Arvind Fashions, India Pesticides, Manorama Industries, Great Eastern Shipping, DFM Foods and Ahluwalia Contracts.

India Pesticides and Gokaldas Exports also saw FIIs push their holding higher last quarter.