Top 4 Favorite Stocks/Most Wanted Stocks
As we move through October, Dalal Street has become a stage for contrasts and record-breaking activity. Foreign investors made headlines by pulling a staggering ₹1 lakh crore out of Indian equities, surpassing the pandemic-driven March of 2020. But this time, the impact on stock indices has been less severe, thanks to domestic institutional investors (DIIs) stepping up with record purchases. For the first time this millennium, DIIs may be outpacing foreign investors in Indian stocks, marking a notable shift in market dynamics.
By the end of September, the gap between foreign institutional investors (FIIs) and DIIs had shrunk to a historic low of 109 basis points. This change shows the increasing influence of domestic capital in Indian equities—a development echoed by Prime Database Group’s Pranav Haldea, who noted the dramatic shift in ownership. “Local investors are now leading the charge, while FIIs are losing their stronghold in the Indian markets,” Haldea stated.
Despite volatility, the BSE 500 index has rewarded investors handsomely with a 34.5% gain over the past year, supported by a resilient domestic economy and solid earnings from Indian companies. Amid rising geopolitical tensions, recession fears, and China’s economic slowdown, India’s equity market has been a standout performer. Mid-cap, small-cap, and public sector stocks have all delivered robust returns, with Indian equities outshining their global counterparts.
Fund managers, however, are treading with caution. Having navigated multiple market cycles, they’ve adjusted their strategies by balancing portfolios with a mix of growth and resilience. This year’s list of Most Wanted Stocks reveals the top picks that fund managers have consistently favored, selected for their strong fundamentals and solid returns over time.
The Selection Process
To identify the top stocks for this year, we started with the BSE 500 stocks and applied a range of filters:
- Consistency in Fund Holding: The stock must have seen a steady rise in mutual fund holdings over the past four quarters.
- Significant Mutual Fund Stake: Only stocks with at least 5% mutual fund holding and owned by 25 or more equity schemes as of September 2024 made the cut.
- Strong Financials: We prioritized stocks with an average return on equity (RoE) of more than 15% over the last three years, eliminating those with declining RoEs, excessively high valuations, or unfavorable analyst recommendations.
Through these criteria, we arrived at a list of six stocks that are top choices among fund managers for 2024.
The Appeal of Consistency: Top Performers from Previous Years
Historically, stocks favored by fund managers have delivered outstanding returns. For instance:
- Vinati Organics: With a compound annual growth rate (CAGR) of 26% since 2014, an investment of ₹1 lakh has grown to ₹9.5 lakh over the past decade.
- Bajaj Finserv: Offering a 27.5% CAGR since 2015, this stock has significantly rewarded long-term investors.
- Coromandel International: This stock has delivered a 28.5% CAGR since 2016, underscoring the resilience of agriculture-related businesses.
- Bharat Electronics: A standout in the defense sector, with a stellar 48% CAGR since 2018.
These examples demonstrate how carefully selected stocks, when held with a long-term perspective, can create considerable wealth.
A Few Words of Caution
For individual investors eyeing these stocks, it’s essential to remember that fund managers build these positions gradually and often from lower valuations. They also have the flexibility to exit swiftly when conditions change. For retail investors, it’s wise to approach these picks with caution and avoid chasing recent performance. Conducting independent research, understanding the business fundamentals, and only investing surplus funds earmarked for the long term is crucial to managing risks and maximizing returns.
In 2024, as domestic investors deepen their influence in Indian markets, these top stock picks by fund managers offer a glimpse into the kind of companies that have withstood market fluctuations and delivered consistent performance. Whether you’re a seasoned investor or just starting, keeping an eye on these favored stocks might inspire your own journey in the world of equity investing.
Top 4 Stock Picks by Fund Managers in 2024
With Indian markets experiencing both domestic resilience and a shifting investment landscape, fund managers have their eyes set on top-performing stocks. Here’s a closer look at some of their favored stocks for 2024, backed by strategic fundamentals and growth potential.
1) Mphasis: Riding the Transformation Wave Amid Uptick in Discretionary Spending
Mphasis is well-positioned to benefit from a steady recovery in discretionary spending within the IT services sector. Though recent deal wins have slowed due to decision-making delays and increased scrutiny from clients, the faster conversion of total contract value (TCV) into revenue signals a return of short-cycle deals and expanding project scopes. The company’s unexecuted TCV remains substantial, adding confidence to its growth trajectory.
Mphasis has witnessed positive trends across all its key verticals, notably within banking, financial services, and insurance (BFSI), where discretionary spending has picked up. A recovering US mortgage market and stronger traction among top clients further enhance its outlook. Recently, the focus has shifted from cost-cutting deals to transformation and modernization projects, with generative AI deals now comprising 35% of its pipeline—a promising indicator of its innovation and adaptability.
Top Funds Holding Mphasis:
| Fund Scheme | Holding (% of Corpus) | Amount Invested (₹ Cr) |
|---|---|---|
| NJ Flexi Cap | 4.62 | 91 |
| Quant Mid Cap | 3.61 | 343 |
| Kotak Emerging Equity | 3.33 | 1,754 |
| Kotak Multicap | 3.23 | 498 |
| Kotak India EQ Contra | 3.12 | 126 |
Number of Mutual Fund Schemes Holding Mphasis: 77
Analyst Recommendations: Buy – 12 | Hold – 7 | Sell – 9
2) Indus Towers: Stable Growth Amid Strong Cash Collection and Tenancy Additions
Indus Towers has demonstrated a strong performance in recent quarters, with stable net tenancy additions and improved cash collection. The company’s tenant additions have been outpacing tower additions, likely benefiting from rollouts by Vodafone-Idea (Vi) and BSNL. The recent fundraising by Vi, combined with anticipated network expansions, presents a positive development for Indus Towers, which has been burdened by Vi’s financial challenges in the past. Notably, Indus has consistently collected overdue payments, reducing its bad debt provisions and strengthening its cash position.
Increased rental per tenant, driven by growing 5G adoption and a reduction in renewal-related drag, further boosts revenue potential. Management is optimistic about securing a high share in Vi’s upcoming expansions, particularly in urban areas, and has linked future dividend decisions to free cash flow generation, with an end-of-year assessment planned.
Top Funds Holding Indus Towers:
| Fund Scheme | Holding (% of Corpus) | Amount Invested (₹ Cr) |
|---|---|---|
| 360 ONE Focused Equity | 4.37 | 357 |
| Mahindra Manulife Focused | 3.73 | 69 |
| Bank of India Large & Mid Cap Equity | 3.53 | 13 |
| Tata Equity PE | 3.16 | 290 |
| 360 ONE FlexiCap | 3.02 | 33 |
Number of Mutual Fund Schemes Holding Indus Towers: 60
Analyst Recommendations: Buy – 9 | Hold – 4 | Sell – 6
3) Cyient: Leveraging Growth in Engineering and Semiconductor Sectors
Cyient, a provider of IT solutions specializing in engineering, manufacturing, data analytics, networks, and operations, has encountered a modest performance over the past two quarters. However, analysts expect a rebound in the second half of the fiscal year. Despite a challenging environment, Cyient secured five substantial deal wins in the September quarter, a positive sign of steady order inflow.
The company is focusing on new growth areas, particularly in the semiconductor segment, which is on the cusp of rapid expansion. To support this ambition, Cyient has established a subsidiary to handle turnkey projects for the semiconductor industry, potentially becoming a significant growth driver. Analysts highlight that while Cyient’s benign valuations and robust verticals, such as aerospace and sustainability, are favorable, successful order execution will be key to realizing its growth goals in the coming quarters.
Top Funds Holding Cyient:
| Fund Scheme | Holding (% of Corpus) | Amount Invested (₹ Cr) |
|---|---|---|
| Kotak Small Cap | 3.27 | 597 |
| ICICI Prudential Smallcap | 2.11 | 187 |
| DSP Small Cap | 1.83 | 306 |
| Canara Robeco Small Cap | 1.40 | 176 |
| Sundaram Small Cap | 1.38 | 49 |
Number of Mutual Fund Schemes Holding Cyient: 33
Analyst Recommendations: Buy – 10 | Hold – 7 | Sell – 1
4) ITC: Strength Across Diversified Segments and Strong Dividend Potential
ITC continues to deliver robust growth across its diversified business segments. In the September quarter, ITC posted a 16.8% year-on-year revenue growth, with strong performances in agribusiness and hotels. Its core cigarettes business remains stable, driven by premium and differentiated products, while its FMCG division has maintained steady growth despite challenges like high inflation and subdued demand.
The company has also expanded its hotels portfolio, adding 30 new properties over the past two years, with plans to add 28 more in the next 24 months. The demerger of the hotel business is anticipated to bolster ITC’s balance sheet and improve return ratios. While ITC’s paperboard division faces pressure from cheaper Chinese imports and rising raw material costs, improved capital efficiency is expected to boost operating cash flow. Additionally, its dividend yield of 3-4% makes it a preferred choice for investors seeking stable returns.
Top Funds Holding ITC:
| Fund Scheme | Holding (% of Corpus) | Amount Invested (₹ Cr) |
|---|---|---|
| Quant Focused | 9.70 | 115 |
| Quant Value | 9.36 | 199 |
| Quant Flexi Cap | 8.81 | 697 |
| Quant Large & Mid Cap | 8.18 | 313 |
| Quant Large Cap | 7.00 | 169 |
Number of Mutual Fund Schemes Holding ITC: 125
Analyst Recommendations: Buy – 31 | Hold – 3 | Sell – 1
As fund managers carefully balance risk and reward, stocks like Mphasis and Indus Towers offer a glimpse into the strategies driving portfolios in 2024. While both companies face industry-specific challenges, their strong fundamentals and favorable growth prospects make them popular choices among mutual funds.
Cyient’s focus on high-growth sectors like semiconductors and ITC’s stable performance across multiple verticals reflect fund managers’ strategic choices aimed at blending resilience with growth potential. These stocks illustrate the nuanced approach fund managers are employing to balance portfolios amid a dynamic market environment.
