Why your mutual fund hasn't given desired returns?

Investors are in a dilemma after seeing two contrasting figures in the stock market. It’s the data about investment by foreign institutional investors and domestic mutual funds in the  Indian market that is confusing them. So, what is the matter here? Confusion is about whether one should invest in the market now after looking at the data of mutual funds or book profits and exit completely.

This is because in October, domestic mutual funds invested about Rs 17,000 crore in the Indian market, while foreign institutional investors have withdrew about Rs 24,500 crore. The sales figure of foreign institutional investors for October is the highest since January 2023, when they sold Rs 28,852 crore worth of shares.

As per SEBI’s data, mutual funds buying in the last two months has declined. It is much higher than FY23 monthly average investment of Rs 14,150 crore and enough to counter the selling by foreign institutional investors as there was no major fall in the market despite huge selling by foreigners.

Here investors can adopt the strategy of ‘trend is friend’. Which means investors can invest only in such stocks where mutual funds are increasing their stake and stay away from those where they have reduced their stake or are exiting.

So, which are such companies?

There are 447 such companies in the BSE 500 index in which mutual funds have increased their stake in the last one or two quarters. Whereas there are 48 such companies in which mutual funds have stayed away or are reducing their stake. Their stake in four companies is stable and in one company — IRCON International — where mutual funds have taken fresh entry.

Out of these 447 companies, stake of mutual funds have increased the most in 17 companies. These include names like Rain Industries, Caplin Point, Godrej Industries, IDFC Limited etc.

There are 15 companies like Adani Wilmar, PNB Housing, MMTC, Indiabulls Housing Finance, HDFC AMC and Piramal Enterprises in which the maximum stake has been reduced.

But how do you select a few stocks from the list of 447? Arun Mantri, Founder of Mantri FinMart says Indian markets nowadays are mostly influenced by the investment trends of retail investors and then domestic institutional investors. So focus on the valuation of stocks rather than funds and invest for long term.

Mantri says that it should also be seen which sector the company is a part of. From the list of companies increasing stakes on behalf of mutual funds, companies like IRFC, Godrej Ind, Federal Bank and Rain Ind are better investment options. Despite stake being reduced by mutual funds, it is advisable to invest in HDFC AMC. From 1-2 years perspective, the target for IRFC is Rs 110, Godrej Ind Rs 780, Federal Bank Rs 220, Rain Ind Rs 210, and target of Rs 3,350 is possible in HDFC AMC.

So even though there has been continuous selling in the market by foreign institutional investors since August, continued buying by domestic mutual funds has helped in creating stability in the market.

(Disclaimer: Stocks recommendations by experts or brokerages are their own and not those of the website or its management. Money9.com advises readers to check with certified experts before taking any investment decisions.)