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Desi fund managers junk domestic themes, shift to export plays amid Covid-19

Desi fund managers junk domestic themes, shift to export plays amid Covid-19

14 May 2021

MUMBAI: Domestic equity mutual fund managers, who manage assets worth over $140 billion among them, reduced exposure to sectors that are likely to suffer from the impact of a severe second wave of Covid-19 infections and leaned towards export-oriented sectors to protect their portfolios.

India has reported over 300,000 new cases of Covid-19 for nearly three consecutive weeks and twice as many daily deaths than during the peak of the first wave, which has turned it the epicenter of the global pandemic.

The second wave of infections has brought nearly two-thirds of the economy under some form of restrictions with the business resumption metrics now hitting their lowest levels since the end of the national lockdown in June, which was one of the strictest in the world at the time.

The lockdowns by states to control the spread of the virus has resulted in trimming down growth expectations for the economy, which was earlier pegged to be the fastest growing large economy in 2021. Global rating agency Moody’s on Tuesday slashed its GDP growth estimate for India to 9.3 per cent from as high as 13.7 per cent few months ago, as it believes the second wave may result in long-term scarring of the economy.

Not surprising then that domestic mutual funds have cut their exposure to consumer-facing companies in India to 6.8 per cent of their total assets in April, the lowest level in more than three years, showed a report by


The move reflected the pessimism for the domestic consumption economy.

Desi fund managers also reduced exposure to popular themes such as cement, automobiles, consumer durables, capital goods and both private and public banks in April.

The auto sector, a solid indicator of demand in the economy, has seen its weightage drop to 6.2 per cent of total equity MF assets. This was the lowest exposure domestic equity funds have had to the sector since July.

“Probably all other types of consumption will see a pretty significant hit. I do not think people are rushing out of their houses to buy clothes or washing machines or cars,” Saurabh Mukherjea, founder and chief investment officer at Marcellus Asset Managers, told ETNow.

With the domestic themes languishing, mutual fund managers shifted their attention to export-oriented sectors in April as a hedge for their portfolios against the near-term vagaries of Covid-19.

Exposure to chemicals, pharmaceutical, textiles and metal sectors increased on a month-on-month basis in April, reflecting the money managers’ preference for companies that will benefit from resurgence in global demand as western economies open after months of rapid vaccination.

Equity fund managers’ exposure to the metal sector jumped to 3.2 per cent, the highest in more than two-and-a-half years. They also increased exposure to the chemicals sector to 2.9 per cent, as the sector benefits from surging global prices amid demand-supply mismatch.

One sector that missed out on the export bandwagon was the IT, where fund managers cut their holdings by 30 basis points on-month to 11.1 per cent, as concerns rose over limited upside and blue-sky valuations, analysts said.