HDFC Asset Management, India’s second-largest mutual fund house by assets, just increased exposure in select midcaps and smallcaps amid the ongoing euphoria in the broader market.

The BSE Midcap and Smallcap indices rose 7 per cent and 10 per cent, respectively, in August, while the benchmark Sensex gained 3 per cent. Data showed the fund house lapped up shares of select private sector lenders, telecom, pharmaceuticals, aviation, auto, engineering, power and metal players during the month.

On the other hand, it sold large amounts of shares in YES Bank (7.30 crore), BHEL (1.69 crore), ITC (1.23 crore) and Bank of Baroda (1.04 crore). The fund house also offloaded 30 lakh to 93 lakh shares each in Inox Leisure, Tata Steel, NTPC, Vedanta, Aurobindo Pharma, Punjab National Bank, Jindal Steel and Power, BPCL and ICICI Bank.

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Overall, the fund house reduced exposure to at least 94 companies, even as it increased it in 71 others. The AMC’s investment team, led by star fund manager Prashant Jain, seems have turned the focus on stocks that are likely to benefit from the recovery in the hinterland and on companies that may benefit from Covid-19 pandemic and from the reopening of the economy.

The fund house added 3 to 50 lakh shares in airline majors InterGlobe Aviation and SpiceJet, automobile players like Escorts and Apollo Tyres, pharma majors Lupin and Sun Pharmaceutical, private lender Axis Bank and HDFC Bank and telecom major Bharti Airtel.

On an average, private bank stocks are trading at a price-to-book value of 2.4 times, near the historical average of 2.5 times. “The Covid-19 outbreak has impacted systemic retail loan growth, which has moderated to around 10.5 per cent YoY in June 2020 (from 17 per cent pre-Covid) and affected overall loan growth. Though banks have highlighted an improving business environment, we expect loan growth to moderate in FY21E,” brokerage Motilal Oswal Financial Services said.

Barring Escorts (down 4 per cent), Bharti Airtel (down 7 per cent) and Sun Pharma NSE 0.44 % (down 2 per cent), other stocks advanced up to 22 per cent last month.

Commenting on the auto sector, Kunj Bansal, Partner & CIO, Sarthi Group, said: “If we go by the management commentary of auto OEMs as well as auto ancillary makers and by the market checks and feedback from the dealers and secondary registration of vehicles, the buying demand seems set to continue and at least was positive in August.”

“Hopefully the festival season will keep the sentiments positive in October and November,”

HDFC AMC NSE 0.98 % also bought 3 to 22 lakh additional shares in NHPC, Elecon Engineering, Muthoot Finance, Titagarh Wagons, Wipro NSE 0.09 %, HPCL, Mishra Dhatu Nigam, Dilip Buildcon, Chambal Fertilizers, Garden Reach and ACC.
Motilal Oswal Financial Services believes the valuation of the cement sector has improved significantly from the lows of March 2020. This has been led by a better-than-expected recovery in cement demand, improved pricing and fixed cost control.

Among other midcaps and smallcaps the fund house accumulated during the month were JMC Projects (48,300 shares), Oracle Financial Services (39,200 shares), Radico Khaitan (37,236 shares), Can Fin Homes (31,841 shares) and Shriram Transport Finance (66,922 shares).

Hero MotoCorp, HCL Technologies, Infosys and HDFC Life also drew the interest of the AMC.

On the sell side, HDFC AMC sold over 5 lakh shares each in RIL, Tata Motors, Tata Consumer Products, Advanced Enzyme, Manappurauram Finance and NBCC NSE 1.54 % during the month. It completely exited Aarti Surfactants, Century Textiles, Equitas Holdings and VRL Logistics, data available with Ace Mutual Fund showed.

On the other hand, Ashok Leyland, Bandhan Bank, GHCL, IDFC First Bank, Jamna Auto, Kajaria Ceramics, SJVN, Teamlease Services, VIP Industries and Transport Corporation of India were among the new entrants in the portfolios of the AMC.