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Here's Why Mutual Funds Are Dumping Tata Stocks... - Outside View by PersonalFN
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Here's Why Mutual Funds Are Dumping Tata Stocks...
Mar 9, 2017

Three months ago, Tata group stocks bore the brunt of the Tata-Mistry boardroom battle. The Tata-Mistry spat began on October 24, when the Tata board in a surprise and unexpected move dismissed Mr Cyrus Mistry as the chairman of Tata Sons. Over the next few months, Mr Mistry was sacked as chairman of the group companies as well.

On his ouster, Mr Mistry and the Tata Board resorted to multiple rounds of allegations, counter-allegations, and legal suits. As the battle continued, investors panicked and started dumping Tata stocks driving the share prices lower. Investors worried and turned negative on Tata stocks. But mutual fund houses, with a total exposure of over Rs 15,000 crore to Tata stocks, preferred to play the wait- and-watch game. Few fund houses picked up shares of the group stocks when prices declined. Most Tata group stocks lost nearly 15-20% in value over the two-month period of November-December 2016.

As the dust settled, nearly all of the Tata group stocks staged a rally in January 2017 as Tata Consultancy Services Ltd (TCS) CEO, Mr Natarajan Chandrasekaran, was named the new chairman of Tata Sons. And interestingly, in the same month, equity mutual funds went on a selling spree.

Actively managed equity diversified mutual funds sold Rs 489 crore worth shares of Tata group companies. TCS and Tata Motors were the top-two highest sold stocks with shares worth Rs 456 crore sold.

Have fund houses lost faith in the long-term prospects of these companies?

There are multiple reasons why mutual funds sold stocks of the group. And it's not just these two companies; there were many others stocks of the Tata group as well. Take a look at some numbers...

Tata Stocks Come Under Pressure
Stocks of Tata Group that were bought and sold in January 2017
Company Name No. of Schemes Having an Exposure No. of Schemes That Bought No. of Schemes That Sold Value Bought/Sold (Rs Cr)
Tata Consultancy Services Ltd. 53 7 22 -262.63
Tata Motors Ltd. 77 9 15 -193.46
Voltas Ltd. 36 4 7 -60.71
Titan Company Ltd. 27 1 9 -52.47
Tata Power Company Ltd. 15 3 6 -35.48
Tata Coffee Ltd. 7 0 1 -15.09
Tata Communications Ltd. 14 3 4 -14.73
TRF Ltd. 1 0 1 -2.42
Rallis India Ltd. 16 6 1 -2.12
Tata Investment Corporation Ltd. 2 0 0 0.00
Tata Global Beverages Ltd. 5 2 0 5.53
Tata Elxsi Ltd. 10 6 0 10.83
Trent Ltd. 6 2 0 12.55
The Indian Hotels Company Ltd. 22 3 2 21.89
Tata Steel Ltd. 48 20 4 45.21
Tata Chemicals Ltd. 30 11 3 53.93

(Source: ACE MF, PersonalFN Research)

Out of the 53 equity mutual fund schemes that held TCS in their portfolio, less than half were net sellers of the stock in January 2017. Seven schemes out of the 53, bought shares of the software major.

Similarly, Tata Motors' holding declined as 15 schemes sold shares of the stock amounting to Rs 194 crore.

For the remaining Tata group stocks, there was no significant change holding.

Most Fund Houses Offloaded Tata Group Shares
Top 10 Fund Houses That Bought and Sold Tata Group Shares

Fund House Name Value Sold (Rs Cr) Fund House Name Value Bought

(Rs Cr)

SBI Mutual Fund 138.85 L&T Mutual Fund 32.32
ICICI Pru Mutual Fund 131.42 BNP Paribas Mutual Fund 19.85
Franklin Templeton Mutual Fund 116.00 HDFC Mutual Fund 16.75
Reliance Nippon Mutual Fund 96.61 Tata Mutual Fund 14.92
Sundaram Mutual Fund 37.83 Birla SL Mutual Fund 13.76
UTI Mutual Fund 31.53 Kotak Mutual Fund 10.41
DSP BR Mutual Fund 12.96 Mirae Asset Mutual Fund 6.60
Canara Robeco Mutual Fund 9.05 Motilal Oswal Mutual Fund 2.39
PPFAS Mutual Fund 8.71 Invesco Mutual Fund 1.45
IDFC Mutual Fund 7.14 Sahara Mutual Fund 1.09

(Source: ACE MF, PersonalFN Research)

Among the fund houses, SBI MF, ICICI Prudential MF, and Franklin Templeton MF were the top-three sellers of Tata group stocks. The three fund houses combined, sold Rs 386 crore worth of shares. While many fund houses were net sellers, in value terms it was much lower than the top four fund houses. A few fund houses such as L&T Mutual Fund, BNP Paribas MF and HDFC MF were buying shares of Tata stocks, albeit lower in lower quantities.

Tata Stocks Stage a Recovery in January 2017
Monthly Performance of Tata Stocks
Company Name Nov-16 Dec-16 Jan-17
Rallis India Ltd. -5.93% -3.25% 18.06%
Tata Chemicals Ltd. -6.88% 6.45% 9.79%
Tata Coffee Ltd. -6.71% -0.61% 5.80%
Tata Communications Ltd. 9.35% -0.14% 15.04%
Tata Consultancy Services Ltd. -2.31% 6.21% -8.79%
Tata Elxsi Ltd. 3.44% 6.72% 2.10%
Tata Global Beverages Ltd. -7.23% 0.37% 4.87%
Tata Investment Corporation Ltd. 0.63% 0.78% 1.56%
Tata Motors Ltd. -12.17% 8.84% 11.35%
Tata Power Company Ltd. -5.08% 2.85% 6.06%
Tata Sponge Iron Ltd. -5.16% 5.75% 3.90%
Tata Steel Ltd. 1.59% -3.76% 16.85%
Titan Company Ltd. -14.02% 4.14% 3.00%
Trent Ltd. -11.35% 12.44% 19.54%
TRF Ltd. -23.59% -4.45% -1.67%
Voltas Ltd. -15.53% 7.22% -0.13%
The Indian Hotels Company Ltd. -7.98% -1.21% 14.37%

(Source: ACE MF, PersonalFN Research)

After suffering a major decline in November 2016, most of the stocks have exhibited a recovery in the ensuing two months. Fund houses reported buying shares of most companies as the prices decline.

Exposure to Tata Group Stocks Back to September 2016 Level
Change in Value of Tata Group Holdings
Company Name Sep-16 Dec-16 Jan-17
Rallis India Ltd. 221.42 159.04 190.01
Tata Chemicals Ltd. 1,214.56 1,214.21 1,370.03
Tata Coffee Ltd. 92.20 95.57 87.83
Tata Communications Ltd. 415.19 416.92 451.81
Tata Consultancy Services Ltd. 2,403.79 2,471.74 2,081.70
Tata Elxsi Ltd. 35.37 86.54 98.54
Tata Global Beverages Ltd. 58.04 88.77 99.41
Tata Investment Corporation Ltd. 47.93 38.54 39.98
Tata Motors Ltd. 4,497.66 4,043.71 4,272.29
Tata Power Company Ltd. 140.24 135.23 104.90
Tata Steel Ltd. 1,882.73 2,089.23 2,509.91
The Indian Hotels Company Ltd. 1,082.24 780.96 879.13
Titan Company Ltd. 610.60 676.48 692.86
Trent Ltd. 521.01 456.24 556.51
TRF Ltd. 16.70 9.00 7.04
Voltas Ltd. 1,509.37 1,350.02 1,284.10
Total Value of Holdings 14,749.06 14,112.21 14,726.03

(Source: ACE MF, PersonalFN Research)

So, as seen in the table, the total exposure to Tata group companies is currently at the same level as seen at the end of September 2016. Among the major holdings, the exposure to Tata Motors has declined by about 5%, while the price of the stock declined by 2.09%. Similarly, the exposure to TCS declined by 13.40%, while over the same period, the price of TCS declined by 8.13%.

On the other hand, the exposure of equity mutual fund schemes to Tata Chemicals and Tata Steel increased.

As a mutual fund investor, should you be worried?

The dip in exposure to Tata group stocks, including TCS and Tata Motors (after adjusting for the fall in price) has been marginal. Therefore, while it may seem that fund houses may be reducing their exposure to Tata group stocks, it may actually be a mix of price volatility and short-term trading bets taken by fund houses. Though short-term portfolio churning is by mutual funds is often looked down upon, but if fund houses see a value buying opportunity or consider averaging out the buying price when stocks are oversold, it may turn out to be a good decision.

When the Tata-Mistry spat began, we had highlighted that Tata group stocks may come under pressure over the short term. We had stated, "in times of fear and confusion, even good stocks come under selling pressure; but that is mostly for the short-term." Most of their stocks have recovered since then.

Our advice, remains the same: as long as you invest in consistently performing best mutual fund schemes that are from fund houses following sound investment systems and risk management processes, there is no need to worry. Such schemes can generate optimal rate of returns for you.

To help you select best mutual fund schemes for your portfolio try our equity mutual fund research service, FundSelect. It is potentially the best way to grow your mutual fund portfolio value significantly! To mitigate volatility, while planning for long-term financial goals, we suggest opt for Systematic Investment Plans (SIPs) mode of investing. It is light on the wallet, makes market timing irrelevant, facilitates rupee-cost averaging, compounds your portfolio better, and enforces a disciplined approach towards investing - which is a must in the journey of wealth creation.

If you need handholding to invest in mutual funds, you can even reach out to a Certified Financial Guardian, who stands as symbol of Trust and Respect.

PersonalFN is a Mumbai based personal finance firm offering Financial Planning and Mutual Fund Research services.

Disclaimer:

The views mentioned above are of the author only. Data and charts, if used, in the article have been sourced from available information and have not been authenticated by any statutory authority. The author and Equitymaster do not claim it to be accurate nor accept any responsibility for the same. The views constitute only the opinions and do not constitute any guidelines or recommendation on any course of action to be followed by the reader. Please read the detailed Terms of Use of the web site.

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