Tech stocks turn attractive for mutual funds amid pandemic

Technology sector saw a massive rise in weightage in FY21 to 11.9 per cent (up 300 bps YoY). The sector is now the second in terms of sectoral allocation by MFs, said a Motilal Oswal Financial Services Report. A year ago, it was in the third position. 

In terms of value increase on a month-on-month increase in March, three of the top five stocks were from technology - Infosys (up Rs 7,000 crore), TCS (up Rs 3,960 crore), and HCL Tech (up Rs 1,690 crore). 

Stocks that saw a maximum decline in value MoM were of Reliance Industries, SBI, ICICI Bank, HDFC Bank, Axis Bank, Bharti Airtel, Coal India, HDFC, Vedanta, and Info Edge. 

The Fund Folio report also said that the year saw a notable change in the sector and stock allocation of funds. The weightage of domestic cyclicals increased by 160 basis points to 58 per cent, led by an increase in the weightage of automobiles, NBFCs, cement, real estate, chemicals, and infrastructure. 

Weightage of defensive stocks decreased 100 basis points to 32.5 per cent, led by consumer, utilities, and telecom. Global cyclicals' weightage, too, fell 60 basis points to 9.5 per cent. 

The consumer sector slipped to fourth place from second place a year ago, with a 240 bps decreased in weightage to 7.4 per cent. 

Metals improved its position to 14 from 16 a year ago, with the weightage increasing by 80 bps to 2.6 per cent. 

Assets under management (AUM) of the mutual fund industry witnessed a growth of 41 per cent in the last financial year to touch a new high of Rs 31.4 lakh crore. 

The growth was primarily led by an increase in AUM of equity funds (Rs 4.09 lakh crore), income funds (Rs 2.39 trillion) and other ETFs (Rs 1.29 lakh crore), the report said. 

Equity AUM, including ELSS and index funds, of domestic mutual funds reached new highs of Rs 10.2 lakh crore (up 67 per cent YoY) in FY21, led by a rise in market indices. 

"The year saw a decline in sales of equity schemes (down 7 per cent YoY to Rs 2,306 billion (Rs 2.30 lakh crore). The pace of redemptions picked up to Rs 2,653 billion (Rs 2.65 lakh crore)  (up 64 per cent YoY), leading to the first ever net outflows in seven years at Rs 347 billion (Rs 34,700 crore) in FY21," it said.