7 Stocks that Mutual Funds Can't get Enough of

Editor's note: The latest data revealed by the Indian mutual funds association (AMFI) showed that fund managers are 'buying the dip' as Indian stock markets continue to fall.

They are focusing more on midcap stocks and smallcap stocks of late and the fundamentally strong companies from the lot.

Yesterday, we wrote about the top 5 stocks mutual funds bought and sold.

The top mutual funds in India made quite a lot of changes in the month of June 2022. However, there are select stocks that they have held on for years.

Back in December 2021, we wrote to you about the 7 stocks that mutual funds can't get enough of.

Mutual Fund Favourite Stocks

Company Name	CMP (Rs)	Latest MF Holdings (%)
HDFC Bank	1,357.70	16.3
HDFC	2,167.40	11.1
ICICI Bank	753.1	28.9
Infosys	1,445.00	13.5
Kotak Mahindra Bank	1,742.90	9.3
Reliance Industries	2,377.30	5.2
State Bank of India	486.7	13.2

Source: Equitymaster

Guess what...fund managers are still bullish on these stocks and have increased exposure since we last wrote to you.

Continue reading to know more about the 7 mutual funds favourite stocks...

Stocks that Mutual Funds Can't get Enough of...

It's said picking stocks in a bull market isn't easy. While we know that investing in stocks is one of the best way to create wealth, picking the right stock comes with difficulties.

You need to separate the good ones and the junk stocks or else you'll end up finding a Reliance Power like story in every bull market.

But wait! There's another way. You can take the easy way out and look at what fund managers are buying.

Fund managers carefully pick stocks based on various factors and zero in on stocks best placed to come through.

Mind you, fund managers can also make mistakes so mimicking their portfolio does not provide a clear solution.

In today's article, let's look at top stocks that fund managers can't get enough of.

Call it India's 'most wanted stocks' or 'mutual fund favourite stocks', fund managers have been betting on these companies, big time.

#1 HDFC Bank

HDFC Bank seems to be the most preferred stock owned by equity mutual funds. And why wouldn't it be given the stock's performance in volatile times.

Investors opt for safe bets when there's uncertainty over the outlook of the stock market.

It comes as no surprise that HDFC Bank holds the distinction of reporting more than 20% YoY profit growth every quarter for over 40 quarters. All this while, its net NPAs have never crossed 0.5% of loans!

It tops the list with banks with lowest NPAs.

HDFC Bank consistently reports good earnings, it has high return ratios compared to its peers, and the private lender has good management.

Even in the year 2020, where the entire banking industry was hit due to the pandemic, HDFC Bank reached out to large corporates for their funding requirements, which it could do because of its strong balance sheet.

The bank, despite having less than 10% share of the banking sector, is one of the most respected banks in the country.

Overall, mutual fund holding in HDFC Bank stands at 14.5% as of September 2021. Mutual funds increased their stake in HDFC Bank by 0.84% in the most recent quarter.

To know more, check out HDFC Bank's latest shareholding pattern.

Update: Fund managers have increased their holding in HDFC Bank for the past four consecutive quarter. The latest data reveals that fund managers bought 1.3% additional stake in March-June 2022 quarter.

#2 ICICI Bank

In August this year, ICICI Bank went past HDFC Bank as the most widely owned stock by mutual fund managers. HDFC Bank dominated this position for several years.

ICICI Bank has also outperformed HDFC Bank in terms of stock performance over the past one year.

In 2018, ICICI Bank appointed Sandeep Bakshi as the CEO and since then, the private lender has seen improvement in earnings, asset quality as well as net interest margin.

Along with its subsidiaries, the private bank has a wide presence across various financial services verticals such as life insurance, general insurance, merchant banking, asset management, etc, with a leadership position in many of these businesses.

Mutual funds hold 27.2% stake of the total shares outstanding in ICICI Bank as of September 2021.

Did you know that ICICI Bank is also among the favourite stocks of foreign investors? As of September 2021, FIIs held a substantial stake of 47.3% in the private lender.

To know more, check out ICICI Bank's latest shareholding pattern.

Update: Like HDFC Bank, fund managers increased their holding in ICICI Bank for the past four consecutive quarters.

The latest data reveals that fund managers bought 0.7% additional stake in March-June 2022 quarter.

#3 Infosys

Infosys is one of the most popular stocks within the domestic mutual fund industry that currently holds 12.2% stake in the company.

You can't just ignore Infosys...it's like if the stock falls over 10% in a day, mutual fund managers will hands down buy the stock.

The top three mutual funds as per AUM (SBI Mutual Fund, ICICI Prudential Mutual Fund, and HDFC Mutual Fund) have Infosys among their top 5 holdings by value.

But why do they prefer Infosys over TCS? Well, in terms of revenue and profit growth, Infosys has a better edge than TCS. (Read our recent piece on Infosys vs TCS: Which is Better?)

Over the year gone by, Infosys has outperformed benchmark indices by gaining over 50%.

To know more, check out the latest shareholding pattern of Infosys.

Update: Infosys received massive MF inflows in the month of May 2022 and June 2022. Latest data reveals fund managers bought additional stake of 0.7% in the June 2022 quarter.

#4 Reliance Industries

While the 4.6% stake of mutual funds in Reliance Industries may seem less, it's a lot when you compare it in market value terms.

There were times when fund managers wanted to buy more shares of Reliance but couldn't because of market regulator's guidelines. The guidelines do not allow actively managed diversified equity schemes to own more than 10% in a single stock. After this limit is hit, the weightage in a scheme can go up only to the extent of rise in share price.

For example, when the markets started to recover in June 2020, following the March 2020 crash, fund managers were unable to buy more shares of Reliance Industries, which was one of the top performers back then.

India's most valuable company is also a favourite of FIIs, which hold a substantial stake over 25%.

Update: Mutual funds increased their holding by 0.4% in Reliance in the most recent quarter (June 2022).

#5 HDFC

Mutual fund holding in Housing Development Finance (HDFC) stands at 9.3% as of September 2021. Fund managers have increased their stake by 0.44% in the most recent quarter.

Interestingly, HDFC tops the list of stocks with highest FII shareholding. FIIs hold a massive 72% stake in HDFC!

HDFC is focusing on the housing demand in affordable housing segment. Despite growing competition from banks in the home loan segment, HDFC remains firmly in place to benefit from the government's strong focus on affordable housing.

The company is among the largest, housing finance providers in India. It has also earned the reputation of a rock-solid financial institution. Not only in India but the world over.

HDFC has the ability to tide over rising inflation and interest rate cycles without additional NPA provision costs on its books.

At the same time, it can raise funds via long-term deposits at attractive interest rates.

HDFC has been able to grow profits at 17% per annum over the past decade.

All these reasons provide enough margin of safety to mutual fund managers to bet on the mortgage lender.

Update: HDFC was and continued to be an FII favourite stock. Mutual funds too have found a liking.

In the most recent quarter ended June 2022, mutual funds bought 1.65% additional stake in the company taking their total holding to 11.1%.

#6 State Bank of India (SBI)

SBI is the biggest bank of India not by marketcap but in term of credit/loans given in the market.

After few troublesome years, SBI's asset quality issues are finally it behind now.

SBI's subsidiaries (SBI Mutual Fund, SBI Life Insurance, and SBI Cards) gives it an edge as all have displayed robust performance and turned market leaders in their segments.

As of September 2021, mutual funds hold 13% stake in the bank with a market value of over Rs 330 bn.

In terms of stock performance, the bank has done well against its peers. It has gained around 90%.

#7 Kotak Mahindra Bank

As of September 2021, mutual funds hold 8.3% stake in Kotak Mahindra Bank.

Kotak Mahindra bank has transformed itself from a bill discounter to a car financer to a universal bank, a broker, an insurer, an asset manager, and finally a fintech major.

The bank is the third largest Indian private sector bank by market capitalisation. It offers products and financial services for corporate and retail customers in the areas of personal finance, investment banking, life insurance, and wealth management.

Over the last couple of years, Kotak Mahindra Bank has demonstrated a highly consistent and healthy historical track record.

Kotak Bank has been among the top picks of mutual funds, given its institutional memory of tiding over one credit crisis after the other for nearly 25 years.

This week, Life Insurance Corporation (LIC) received approval from the Reserve Bank of India (RBI) to increase its stake in the private lender to 9.99% from the current 4.96%.

Which other stocks are fund managers bullish on?

The above list covered the top stocks held by mutual funds based on market value.

Now let's look at stocks where mutual funds hold the most as a percentage of total shares outstanding.

Company	Latest MF Holding
Federal Bank	32.72%
IPCA Labs	21.82%
Gujarat State Petronet	19.77%
Emami	19.76%
Axis Bank	19.61%
Cholamandalam Investment	18.21%
Bata India	17.88%
Supreme Industries	17.03%
Phoenix Mill	16.92%
L&T	16.31%
Indian Energy Exchange	15.86%
Fortis Healthcare	14.47%

Source: Equitymaster

Track what mutual funds are buying and selling...

A smart way to filter stocks is to figure out who else is buying them. By watching this activity, it's easier to get a sense of a stock's prospects.

Ever wondered if there was a stock screener that lets you find all this at one click? Equitymaster has got you covered.

We've recently launched our new Stock Screener which filters stocks that mutual funds and institutional investors are buying and selling.

To track what mutual funds are buying, check out our screener on stocks recently bought by mutual funds.

You can also screen stocks recently sold by mutual funds.

To know what's moving the Indian stock markets today, check out the most recent share market updates here.

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...