Mutual Funds’ exposure to Nifty touches decade high

The Indian stock market has seen both ups and downs in the last two months. The post-poll survey made the Indian stock markets surge to record levels while the post-Budget response has instead been inadequate. 

The Union Budget 2019-20 did not address any concerns of the equity investors. As a result, the foreign portfolio investors (FPIs) have started exiting the Indian equity market, which has led the markets to fare poorly in July 2019 so far.

Higher taxation on the super-rich, the imposition of tax on long-term capital gains (LTCG) in unison with the securities transaction tax (STTs), and relatively lower period for considering equity holdings as long-term are some of the many reasons why the Indian stock markets lost the charm when they were touted to boom. 

In a bid to make the most out of the bearish markets, mutual funds have turned towards Nifty 50 stocks. Mutual funds have now invested heavily in the top 10 Nifty stocks, which is the highest in the last ten years and indicates a slowdown in the growth and economy.

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The Economic Times collected data from Value Research, which showed that of total investments in Nifty 50 stocks at the end of June, mutual fund investments stand at 58%. Around 2008-09, when the sub-prime mortgage crisis sunk the world, the Nifty 50 exposure was 51% while it was a mere 47% around three years back.

The fund managers turn towards the top-performing stocks when the markets are down to avoid possible risk and volatility. Also, the top 10 Nifty stocks have performed well of late and are relatively less risky than the residual 40 stocks in the basket.

Furthermore, the share prices of the top 10 Nifty stocks have been stable even at the times when the markets are on the bearish run. Keeping the investors’ interest in mind, the fund managers have decided to be more risk-averse and hence, have chosen to invest in the leading stocks.