One-month return for top 5 MFs improve; top 10 stocks they are betting on

Indian markets remained volatile throughout May, but top five equity mutual funds schemes that cover mid & small cap stocks managed to outperform Sensex on a month-on-month basis.
The S&P BSE Sensex has risen a little over 2 per cent so far in May, while mutual fund schemes like BNP Paribas Midcap growth fund rose over 4 per cent. Canara Robeco, Mirae Asset Emerging Bluechip and SBI Magnum Global have returned more than 2 per cent each.

All the five mutual fund schemes have also managed to better their performances in the last one month as compared to the returns delivered in the last three months.

Retail investors, who had turned their back on equities after the 2008 financial crisis, are gradually warming up to the equity markets, say experts. Retail money is slowly finding its way back into the market through the mutual fund route, they say.

According to recent data, the mutual fund assets base of retail investors rose by a staggering 51 per cent to over Rs 2.43 lakh crore at the end of March 2015, as against the year-ago level, PTI reported.

According to mutual fund industry data, retail investors held Rs 2,43,569 crore in MFs as of March 2015, higher than Rs 1,61,783 crore held by them in March last year

The number of active investors on stock exchanges has been on the rise over the last one year, and experts are of the view that participation from retail investors is likely to grow going forward.

Domestic households are expected to put in a whopping USD 300 billion (about Rs 19 lakh crore) in equities over the next 10 years, Reuters said in a report quoting Morgan Stanley.

Most funds have their top holdings in sectors such as financials, consumer durables and automobile stocks.

We have collated a list of ten stocks from top five equity mutual fund schemes that cover mid & small cap scrips:

Yes Bank Ltd: Target price at Rs 1,100
BofA-ML is of the view that Yes Bank can trade up to 2.9x FY17 adjusted book value, or 1SD (one standard deviation) above average multiples, given: a) likely market share gains driven by distribution expansion should mean that volume / fee growth will outpace any incremental spike in credit costs, b) a high balance sheet buffer, which remains well above the industry average. It allows Yes Bank to absorb any undue credit-cycle shocks, if any, and a strong capital position, with Tier 1 at around 11.5 per cent.

IndusInd Bank Ltd: Target price at Rs 1,100

In planning cycle 3, the bank's key focus is to build scale with 3Ds strategy - Dominate (among top three banks in home markets), Differentiate (extensive use of technology and cross-sell) and Diversify (new product addition, payment solution etc), Motilal Oswal Securities said in a report.

"Strong core profitability (2.9% of average assets v/s private banks average of 2.5% and HDFC Bank of 2.7%), improving CASA ratio (best among mid-sized private banks) and healthy return ratios (RoA of 1.9% and RoE of 18-19%) are key positives. Delay in CV cycle revival and sharp moderation in fees remain the key risks to our estimates," added the report.

Finolex Cables: Target price at Rs 298

The growth of the company is closely related to revival in the capex cycle of the industries catered to. With the new government's increased focus on industrial and infrastructure sectors, FCL is well placed to reap benefits of the same, Angel Broking said in a report.

"We introduce FY2017 earnings in our estimates and recommend an 'Accumulate' rating on the stock with a target price of Rs 298, valuing the stock at 15x on FY2017E EPS of 19.9," added the report.

Axis Bank Ltd: Target price Rs 672

"Axis Bank's healthy branch expansion has not only helped it maintain low cost deposits (CASA at a healthy 45%), but also improve its mix of profitable retail loans to total loan book from 20% to 39%," says Vaibhav Agrawal, VP & Head of Research at Angel Broking Pvt Ltd.

"It is well capitalised with Tier I capital adequacy at 12%, positioning it strongly for growth and market share gains as GDP growth revives. On valuation front, bank is trading at 2.3x FY2017 P/ABV. We recommend a BUY on Axis Bank," he adds.

ICICI Bank: Target at Rs 394

"Sustained improvement in NIM and operating efficiency, along with the bank's substantial branch expansion in the past four to five years and strong capital adequacy have positioned it to grow at least a few percentage points faster than the average industry growth rate," says Vaibhav Agrawal, VP & Head of Research at Angel Broking Pvt Ltd.

"Improvement in NIM and decent credit growth are expected to drive 18% CAGR in net profit over FY2015-17E and enable a RoE of 16.3% by FY2017E. At CMP, the bank's core banking business (after adjusting INR 46/share towards value of subsidiaries) is trading at 2.0x FY2017E ABV. We recommend a 'BUY' on ICICI Bank," he adds.

Sundaram Finance:

Shares of Sundaram Finance have already rallied over 18 per cent so far in 2015, and about 80 per cent in the last one year. Sundaram Finance is one of the oldest and largest providers of finance for the acquisition of commercial vehicles of all makes.

P&G Hygiene & Healthcare Ltd:

Shares of Procter & Gamble Hygiene have risen nearly 10 per cent so far in 2015, while on a one year basis, they have rallied over 60 per cent.

Procter & Gamble Hygiene & Healthcare Ltd's key products include cosmetics, personal products, toilet preparations etc.

For the quarter ended 31-Mar-2015, the company has reported a standalone sales of Rs 554.84 Crore, down 13.85% from last quarter sales of Rs 644.03 Crore, and and up 10.89% from last year same quarter sales of Rs 500.35 Crore. Company has reported a profit after tax of Rs 86.89 Crore in latest quarter.

Sun Pharma Ltd:

Sun Pharmaceuticals Ltd: Target price at Rs 953

"Taro reported in-line 4Q resulting in 4th successive quarter of declining volumes (adjusted for price benefits in 2QFY15) led by customer consolidation, increasing competitive intensity and overall industry consolidation," Reliance Securities said in a report.

"Though management reiterates its focus on profit sustainability, it remains cautious of the challenges ahead. Ex-Taro, Sun's base business has witnessed a declining trend over the past 7 quarters, highlighting slowdown in the growth engine. We maintain NEUTRAL with a Fair Value of Rs 953," added the report.

Idea Cellular Ltd:

IDEA's March quarter consolidated EBITDA grew 37.4% YoY/11.3% QoQ to Rs 30.65 bn. Net profit increased 60% YoY/23% QoQ to Rs 9.42 bn which was in line with estimates.

"Given expected increase in amortisation and finance costs on account of recent Rs 300 bn outlay towards spectrum, continued above-industry growth would be critical for earnings to hold," Motilal Oswal securities said in a report.

Ramkrishna Forging Ltd: Target price at Rs 616

Microsec Capital recommend Ramkrishna Forging Ltd (RKFL) a 'strong buy'. RKFL is a medium-sized forgings company, manufactures products for automobile followed by railways, and mining sectors. Over the last 2 two years, RKFL's financials hit by worst-ever demand slumps, lacklustre industrial activity and elevated interest rates caused industry volumes to plummet more than 40% over FY12-FY14.

The strong export growth, which is likely to be seen in FY15e from its capacity expansion to 1,50,000 tonnes a year, increased domestic demand in MHCVs segment, higher capacity utilisation in FY15e to enhance margins, bodes well for the RKFL's fortune.