Top 5 Smallcap Stocks in Which Mutual Funds Increased their Stake in Q1

Ever since the government launched Atmanirbhar Bharat" in May 2020, this concept has penetrated many segments of the country.

Over the years, the Indian stock market appears to be moving toward becoming Atmanirbhar as evidenced by the gradual increase of the domestic investors.

The shareholding of domestic investors in the Indian markets reached an all-time high of 25.8% as of 30 June 2024.

Meanwhile, the holdings of foreign investors have declined to a 12-year low. The Domestic Institutional Investors (DIIs) will soon take over the Foreign Institutional Investors (FIIs) in the next few quarters.

For years, FIIs have been the largest non-promoter shareholder category in the Indian market with their investment decisions having a huge bearing on the overall direction of the market.

DIIs along with retail investors and high net worth Individuals (HNIs), have now been playing a strong counterbalancing role with their shares reaching an all-time high.

The share of DIIs as a whole increased to 16.2% from 16% during the last quarter of FY24.

On the other hand, FIIs pulled out Rs 76.9 billion (bn) from the Indian stock market, leading to a decline in their share to 17.3% from 17.7% in the last quarter of FY24.

This has resulted in the gap between FII and DII holding narrowing to its lowest-ever level with DII holding now being just 6.6% lower than FII holding.

In this article, let's walk through a few companies' mutual funds that increased their stake in Q1.

#1 Sterlite Technologies

Sterlite Technologies Limited was established in July 2001 after the demerger of the telecom division of Sterlite Industries Ltd (SIL).

In July 2006, STL acquired the transmission line business of SIL to foray into the power transmission cables business.

STL has grown over the years to become the country's largest optical fiber and optical fiber cable manufacturer. The company also has a sizeable presence in overseas markets.

As of the fourth quarter of FY24, the company's order book stood at Rs 102 bn vs Rs 98 bn in the third quarter of FY24.

The company's global ex-China optical fiber cables (OFC) market share was 8% in FY24 vs 12% in FY23. It is among the largest and lowest-cost producers of optical fiber and OFC in India because of extensive backward integration.

The company aims to be among the top three optical fiber makers globally with the full utilisation of capacity added at its global factories. It has set up a target of becoming net-zero debt by 2030.

Sterlite reported a consolidated loss of Rs 0.82 bn for the fourth quarter of FY24, mainly due to a dip in the optical networking business. The company posted a profit of Rs 0.63 bn a year ago.

Its consolidated revenue from operations declined about 39% to Rs 11.4 bn during the last quarter of FY24 from Rs 18.7 bn in the March 2023 quarter.

The optical networking business revenue of STL almost halved to Rs 7,770 m during the fourth quarter of FY24 from Rs 15,050 m in the March 2023 quarter.

The annual revenue from the optical networking business also declined by about 30% to Rs 38.3 bn from Rs 54.3 bn a year ago.

The MF holdings were 0.1% in the previous quarter, but in the latest quarter, the holding went up to 8.5%.

AI is bringing renewed excitement into the fiber space. The company sees 5G, fiber to the home, and data center build-outs as the holy trinity of fiberisation for the years to come.

#2 Sharda Motors Industries

Sharda Motor Industries is primarily engaged in the manufacturing and assembly of auto components and white goods components.

The company's product portfolio includes exhaust systems, catalytic converters, suspension systems, sheet metal components, and plastic parts for the automotive industry.

The company has a market share of 30% in emissions control systems and 10% in control arms for the passenger vehicle segment in India.

The company plans to add a new facility in Pune, with an investment of Rs.0.5 bn.

As of FY24, the company is debt-free with a surplus cash of Rs 9 bn.

In May 2024, the company announced a buy-back of 102.7 m equity shares for Rs 1,800 each.

The company aims to boost its market share in light commercial vehicles, passenger vehicles, domestic exhaust systems, and the real driving emissions (RDE) segments.

It targets market leadership in domestic tractors and the TREM V market starting April 2026. The focus includes exports, with a pipeline of subcomponents and emission systems for tractors and gen sets, and increased attention on powertrain-agnostic solutions.

MF holdings were nil in the previous quarter, but in the latest quarter the holding went up to 7.9%.

The company's net profit jumped 39.1% from last year's same period to Rs 0.7 bn in the first quarter of FY25.

Sharda's net profit margin jumped 32.6% since last year's same period to 10.8% in the first quarter of FY25.

#3 Sudarshan Chemicals Industries

Sudarshan Chemical Industries manufactures and sells a wide range of organic and inorganic pigments, effect pigments. The group also manufactures pollution control equipment, size reduction equipment, and grinding equipment for industrial applications.

The company is the third largest pigment manufacturer globally. In FY24, it holds a 35% market share.

On 7 June 2024, HDFC Mutual Fund bought a 1.4% stake or 1 m shares in Sudarshan Chemical Industries for an average price of Rs 778.1 per share.

This isn't the first time HDFC MF grabbed a pie of Sudarshan. HDFC MF's stake increase in Sudarshan is likely driven by expectations of an upturn in the chemicals industry, Sudarshan's improved position in the global pigments market, and its recent capacity expansion.

In fact, the recent shake-up in the global pigment industry after the world's biggest player Heubach filed for bankruptcy has opened gateways for Sudarshan Chemicals to fill the void and emerge to clench the second spot in the industry.

Sudarshan Chemical has an 80% portfolio overlap with that of troubled players, thereby expanding the opportunity to fill the demand void and gain market share for the company.

Net sales of the company stand at Rs 6.3 bn in June 2024 up 4.1% from Rs 6 bn in June 2023. The company's quarterly net profit at Rs 294.3 m in June 2024 was down 88.9% from Rs 2,669.6 m in June 2023.

Sudarshan's earnings before interest tax depreciation and amortisation (EBITDA) was Rs 840.6 m in June 2024 up 13.5% from Rs 740.1 m in June 2023.

#4 Prudent Corporate Advisory Services

Incorporated in 2003, Prudent Corporate Advisory Services Limited provides retail wealth management services.

The company offers mutual fund products, life and general insurance solutions, stock broking services, SIP with insurance, gold accumulation plans, asset allocation, and trading platforms.

The company's business consists of the distribution of mutual funds, insurance policies, and other financial products like PMS, AIF, FDs bonds, unlisted equities, stockbroking solutions, loans against securities, NPS, structured products, and stockbroking services.

The company earns recurring revenue from commissions earned on various products and non-recurring revenue from brokerage.

The company follows an "open-source" distribution model, where it distributes mutual funds of asset management companies (AMCs) irrespective of their affiliation or size.

Prudent s reported a 51% year-on-year (YoY) increase in revenue from operations, reaching Rs 2.4 bn in the first quarter of FY25. The company achieved a net profit of Rs 0.44 bn for the first quarter of FY25, a 57% growth compared to the same period last year.This significant revenue growth was driven by a 52% increase in the quarterly average assets under management (AUM) in the mutual fund sector alongside a 64% rise in revenues from non-mutual fund products.

On 26 July 2024, Prudent reached a major milestone with an AUM of Rs 100 bn. Prudent became the 2nd non-banking mutual fund distributor to achieve this milestone.

The SIP book grew by 41% YoY in June, totalling Rs 7.8 bn. Prudent's market share of SIP flows in the industry was 3.7% for June 2024.

Their next goal is to reach a SIP book of Rs 10 bn by March 2025.

Mutual Fund Distributor's traction towards partnering with the technology-led platform has grown multifold post-Covid. This is visible in Prudent's numbers.

In five years, the number of MFDs joining Prudent's platform has grown by almost 3x. Equity AUM has grown at a compounded annual growth rate(CAGR) of 40% versus the industry's 28%. Monthly SIP flow has grown at a CAGR of 26% versus the industry's 21%. Number of investors & folios have grown at 21% CAGR.

#5 Sansera Engineering

Sansera Engineering Ltd is an engineering-led manufacturer of complex and critical precision-engineered components across automotive and non-automotive sectors.

The company manufactures and supplies a wide range of precision components for aerospace, off-road, agriculture, and other segments.

The order book for FY24 stands at Rs 15.9 bn which will be completed over the next 3 years.

The company supplies to 9 out of the top 10 automakers in India and its clientele includes two-wheelers: Bajaj, Harley Davidson, Hero, HMSI, KTM, Royal Enfield, and Yamaha.

The company announced that it has signed a memorandum of understanding (MoU) with Karnataka Udyog Mitra for the acquisition of 55 acres of industrial land.

The company reported a 10.8% YoY increase in net profit at 0.5 bn for the first quarter of FY25.

The company's revenue from operations rose 12.7% to Rs 7.4 bn as against 6.6 bn in the corresponding period of the preceding year.At the operating level, EBITDA was up 12% to Rs 1.2 bn in the first quarter of FY25 over Rs 1.1 bn in the corresponding period in FY24.

EBITDA margin stood at 17.1% in the quarter as compared to 17.2% in the corresponding quarter last year.

Sansera Engineering reported a 12% YoY growth in domestic revenues, while international revenues grew by 17% YoY.

Snapshot of Smallcap Stocks in which Mutual Funds have Increased Stake

Here's a snapshot of the above companies on various parameters.

Conclusion

The market performance of DII significantly affects liquidity in financial markets.

When these investors actively participate in the stock market, there is a steady inflow of capital, which helps to bridge any capital gaps in the market and subsequently increases liquidity.

DII and FII are influenced by different factors and, hence, move in opposite directions at times. An economy that is developing and emerging, like India, requires a healthy interplay between foreign institutional investors and domestic institutional investors.

This interplay ensures a healthy stock market environment, which plays a crucial role in developing a dynamic economy that attracts growth opportunities.

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