Mutual fund managers held stakes in 12 out of the17 companies that got listed in the March quarter at an aggregate market value of over Rs 3,200 crore as on March 31, data from Morningstar India showed.
The IPO market continued to boom in the first quarter of calendar year 2021 as 17 companies raised Rs 18,800 crore. This is highest since January-March 2018 when 14 companies raised Rs 19,275 crore.
“MFs invest in IPOs with two perspectives. One, tactical(ly) – to capitalize on IPO mispricing which results in listing gains. Two, (they are an) opportunity to invest in new companies which have promising businesses and good long-term prospects,” said Srinivas Rao Ravuri, CIO – Equities, PGIM India Mutual Fund.
Many big-ticket companies made their debut on bourses in the March quarter such as India Railway Finance (IRFC), a wholly-owned subsidiary of Indian Railways, Indigo Paints, Home First Finance and Kalyan Jewellers.
The table alongside has details.
Experts said that fund managers bought shares of companies that are from the mid & smallcap space with niche business models as well as fundamentally sound bets.
“Most of the fundamentally sound companies in the listed space are trading at their multi-year high valuation, therefore, fund managers and FIIs are looking for new ideas in the IPO space which have strong fundamentals and are trading at discounted valuation compared to their listed peers,” said Vinit Bolinjkar, Head of Research, Ventura Securities Ltd.
“Out of these stocks, we are bullish on MTAR Tech, Craftsman Automation, Stove Kraft, Easy Trip Planner and Home First Finance. These are fundamentally sound bets and their business growth is better than the respective industry performance. We would recommend investors hold their positions in these stocks,” he said.
That said, experts also warned that holding by domestic or foreign fund managers should not be the sole criterion for retail investors to pick these stocks. A strong business model, the potential growth rate for the business in the future, debt on books, business moat, and valuations are also key factors.
“Whether it is an IPO or buying a secondary stock, the analysis is the same. Essentially, fund managers evaluate return potential based on valuations and future earnings growth as well as the sustainability of that growth given the size of the market and the company’s moat within the market,” Jyotivardhan Jaipuria is the Founder and CEO of Valentis Advisors Pvt Ltd told Moneycontrol in an interview.
This holds true even for stocks such as Home First Finance and Stove Kraft, which have emerged as favourites of both domestic and foreign fund managers. At the end of March 31, 2021, domestic and foreign institutions held both held at least 5 percent stakes in both of these stocks – the only ones among the 17 that listed in the March quarter.
“We believe FII and mutual funds holding a high percentage in stocks should not be the sole criteria to look at before investing,” said Ajit Mishra, VP- Research, Religare Broking Ltd.
“For Home First, we believe the company has decent fundamentals however considering the second wave of virus, it would be advisable to wait for more clarity as restrictions could impact the financial performance of the company,” he said about the affordable housing finance firm.
“For Stove Kraft, it has promising long term growth prospects but we would suggest investors to wait until there are meaningful signs of revival in the financial performance of the company,” he added.
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