Most Wanted Stocks 2024: 3 AI Stocks that Fund Managers have Been Most Bullish on in the Last One Year

Artificial Intelligence (AI) stocks are capturing significant attention in global markets, underscoring the technology's rising importance across diverse industries.

With capabilities ranging from creating professional headshots to generating engaging content, AI's potential appears limitless. Unlike many trends that may fade, AI is positioned to remain a transformative force in the market.

As the appetite for AI technology continues to grow, Top Indian AI stocks are beginning to gain traction. Despite a recent pullback in the market, investors have reaped considerable rewards over the past year.

Domestic equity fund managers, leveraging insights from previous market cycles, are adopting a more cautious approach.

They are fine-tuning their strategies and implementing various risk management techniques to build robust portfolios anticipating more challenging market conditions.

In this article, we will examine three AI stocks that have consistently been favoured by mutual fund managers. These stocks have witnessed a steady rise in mutual fund holdings over the last four consecutive quarters since September 2023.

#1 Mastek India

First on the list is Mastek India.

Mastek provides comprehensive services to modernize data, automate processes, and implement AI-powered solutions. They focus on decomplexifying data, simplifying architectures, and maximizing data-driven decision-making capabilities.

Data from the exchanges reveals that mutual funds have shown a bullish stance on Mastek since the March 2023 quarter, steadily increasing their stake from 0.95% in March 2023 to 5.1% by September 2024.

Quarter Ending	Sep-23	Dec-23	Mar-24	Jun-24	Sep-24
Mutual Fund Stake (%)	1.4	1.6	2.1	2.2	5.1

Source: Equitymaster

Notably, in September 2024, ICICI Prudential Mutual Fund acquired approximately 5 lakh shares in Mastek, totalling Rs 1375.5 million (m) at an average price of Rs 2,751 per share.

As of September 2024, ICICI Prudential's Retirement Fund Pure Equity Plan holds a 2.8% stake, while Tata Retirement Savings Fund holds 2%, making them the top mutual fund holders in the stock.

This robust buying interest could be attributed to Mastek's ambitious growth plans. The company has set a target to achieve US$ 1 billion (bn) in annual revenue by 2026 or early 2027, driven by a strategic approach that combines organic growth and targeted acquisitions.

Mastek aims to simplify complex digital solutions, deepen industry-specific expertise, expand its digital and cloud services, invest in skilled talent, and explore innovative platform opportunities.

A key pillar of its growth strategy is acquisitions, particularly in the US market, to strengthen its presence and offerings.

Over the years, Mastek has consistently demonstrated strong financial performance. The company's revenue has grown at a compound annual growth rate (CAGR) of 24.2% over the past five years, while its profits have surged by 25.1% over the same period.

Looking forward, Mastek is optimistic about a turnaround in its performance in the second half of FY24, anticipating a favorable demand environment. The company is positioning itself as a provider of differentiated business solutions, particularly in the UK public sector.

Additionally, Mastek's cloud-native platform, icxPro, has recently partnered with NVIDIA AI Enterprise to enhance customer experience (CX) management across various sectors.

icxPro is designed to support scalable AI applications, enabling the development of domain-specific AI solutions through NVIDIA's advanced computing platform.

This strategic partnership with NVIDIA is expected to play a substantial role in driving Mastek's growth trajectory forward.

For more details, see the Mastek company fact sheet and quarterly results.

#2 Mphasis

Next on the list is Mphasis.

Mphasis is actively involved in the AI space, offering a range of services and solutions to help businesses leverage the power of artificial intelligence. The company focuses on using AI to improve user experiences, optimise processes, and drive business growth.

Mphasis offers solutions like Optimize.AI for user journey analysis, cognitive analytics for data-driven insights, and machine learning for building intelligent systems.

Recently, Mphasis partnered with AWS to launch the Mphasis Gen AI Foundry, an initiative aimed at transforming the financial services industry through generative AI.

Through this and other AI-focused initiatives, along with partnerships with prominent technology providers, Mphasis is well-positioned to guide organizations through the complexities of AI and enable them to meet their business goals.

Mutual fund interest in Mphasis has remained strong since the September 2023 quarter.

Quarter Ending	Sep-23	Dec-23	Mar-24	Jun-24	Sep-24
Mutual Fund Stake (%)	13.2	13.6	13.9	22.8	24.3

Source: Equitymaster

In September 2024, Kotak Equity Opportunities Fund Growth acquired 600,000 shares in the company.

Below is a list of the top five mutual fund holders in Mphasis.

Funds	Holding (%)	Invested Amount (Rs in Billion)
NJ Flexi Cap	4.6	0.9
Quant Mind Cap	3.6	3.4
Kotak Emerging Equity	3.3	17.5
Kotak Multicap	3.2	4.9
Kotak India EQ Contra	3.1	1.3

Source: Equitymaster

This interest is likely driven by Mphasis' position in a recovering market for discretionary spending.

Although deal wins have been somewhat limited due to longer decision-making cycles and increased scrutiny by clients, a faster conversion of total contract value (TCV) to revenue suggests that discretionary spending, short-cycle deals, and project expansions are making a comeback.

The company's high unexecuted TCV provides further confidence moving forward, with stability across key verticals and regions.

Mphasis also reports promising growth across its client portfolio, noting recovery in discretionary spending in the BFS sector and anticipates further momentum as monetary policies ease.

Additionally, Mphasis has seen an uptick in recovery among its top clients and in the US mortgage market.

The company has consistently achieved proactive deal wins, with a broad base of wins spanning multiple verticals and tiers within its client base.

Over the past five years, Mphasis's financials have shown steady growth, with revenue increasing by 11.4% and net profit rising by 7.7%.

Mphasis is also gradually shifting its focus from cost-cutting deals to transformation and modernization projects, with generative AI deals now accounting for 35% of its current pipeline.

This strategic pivot positions the company well to capitalize on the growing demand for advanced AI-driven solutions.

For more details, see the Mphasis company fact sheet and quarterly results.

#3 Cyient

Last on the list is Cyient.

Cyient is actively leveraging Artificial Intelligence (AI) to drive innovation and enhance its service offerings across various industries.

Cyient is investing heavily in the AI space, actively constructing AI platforms, and integrating them in its products and services. For instance, it's working towards cloud-enabled, AI-driven analytics to detect and predict anomalies.

The company has also been actively exploring and integrating AI into its internal business operations and services. By leveraging AI, Cyient aims to enhance its software solutions and provide more intelligent and efficient services to clients across various sectors.

Cyient is integrating AI into its semiconductor offerings too. Its clients in this space are in aerospace, defence, healthcare, and energy sectors. Its services here will be driven by miniaturisation, next-gen chips, advanced packaging systems, and increased usage of AI in chip design.

In recent quarters, Cyient has experienced steady buying interest from mutual funds.

Quarter Ending	Sep-23	Dec-23	Mar-24	Jun-24	Sep-24
Mutual Fund Stake (%)	19.7	20.4	22.8	23.6	24.2

Source: Equitymaster

Mutual fund stakes in the company increased from 19.8% in September 2023 to 24.25% by September 2024, reflecting growing confidence in Cyient's prospects.

Following are the top five funds holding Cyient.

Funds	Holding (%)	Invested Amount (Rs in Billion)
Kotak Small Cap	3.3	5.9
ICICI Pru Smallcap	2.1	1.9
DSP Small Cap	1.8	3.1
Canara Robeco Small Cap	1.4	1.8
Sundaram Small Cap	1.4	0.5

Source: Equitymaster

This strong interest can be attributed to Cyient's resilience and progress despite a challenging market environment. In the September quarter, Cyient recorded five significant deal wins, signalling stable order intake.

The management is optimistic about improving margins in the medium term, driven by growth leverage and operational efficiencies. The company's strategic focus on emerging growth areas, particularly in the semiconductor business, has been promising.

This segment appears to be at an inflection point, with Cyient making consistent progress in unlocking its potential.

To support this growth, Cyient has established a subsidiary to handle turnkey projects in the semiconductor space, which is expected to serve as a significant growth engine.

Over the past five years, Cyient's revenue has grown at a compound annual growth rate (CAGR) of 9.1%, while its net profit has risen by 8.1%.

Recently, Cyient announced a strategic collaboration with Microsoft to develop a new product called 'Engeener,' further demonstrating its commitment to driving growth through AI and strategic partnerships.

Conclusion

Considering AI stocks that mutual funds are consistently buying could be a strategic move. Mutual funds, managed by experienced professionals, tend to focus on companies with strong growth potential and innovative capabilities.

As AI becomes integral to various industries, mutual fund managers are investing in companies that leverage AI to improve operational efficiency, gain competitive advantages, and drive long-term growth.

The AI sector in India is projected to expand substantially, with investments rising from around US$ 665 million (m) in 2018 to a forecasted US$ 11.78 bn by 2025, and potentially nearing US$ 17 bn by 2027.

This growth reflects a broader trend in which AI is transforming industries ranging from IT and finance to manufacturing and healthcare.

Additionally, the IT sector's high AI adoption rate (60-65% compared to the national average of 48%) demonstrates the importance of this technology for achieving business efficiencies and innovation.

Investing in AI stocks could offer significant returns as the sector expands. However, it's essential to consider each company's specific strengths, growth strategies, and adaptability within the fast-evolving AI landscape.

Investing in AI stocks, while promising, is not without its risks.

These stocks are often more volatile, subject to significant price fluctuations that can result in substantial losses.

Additionally, companies heavily invested in AI, particularly smaller firms, may face challenges such as limited financial resources, making them more vulnerable to market downturns and operational setbacks.

Therefore, while the potential for high returns in the AI sector is substantial, it is crucial for investors to carefully balance these opportunities with the associated risks.

Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such. Learn more about our recommendation services here...