Stocks to buy: Largest equity fund investor loads up on undervalued PSU stocks, dumps insurers

SBI Mutual Fund, India’s third largest asset management company, loaded up a number of undervalued PSU stocks in November as the buzz over divestment grew.

The fund manager bought nearly 3 crore shares of Bharat Heavy Electricals (BHEL) during the month, data available with corporate database ace Equity shows. It also acquired 2.26 crore shares of Power Grid Corporation and 1.31 crore shares of its peer SJVN.

BHEL is said to be one of the companies the government is mulling to disinvest to reach its divestment target of Rs 1.05 lakh crore for 2019-2020. The government plans to lower its stake in BHEL to 26 per cent from 63.17 per cent now.

Following these reports, global brokerages CLSA upgraded the stock to ‘buy’ from ‘sell’. It cut earnings estimates for this financial year, but raised price target to Rs 67 from Rs 54 on a rolling forward estimates and rerating on divestment. The stock trades around Rs 45 on BSE.

SBI MF added 10 lakh to 68 lakh shares of 23 companies in November, including ITC, NHPC, Bharti Airtel, Infosys, Prism Johnson, Zee Entertainment, Hatsun Agro, RIL, SBI, Kotak Mahindra Bank, Vedanta, Hatsun Agro Products, Indostar Capital Finance, Bajaj Finance, Cummins India, GAIL and YES Bank, among others.

Taking a contrarian view, the fund house added 10.57 lakh shares of YES Bank, which is battling liquidity issues, and now, it holds 4.62 crore shares of the beleaguered lender.

Reuters data showed just seven analysts out of 36, who track a stock, have positive opinion on it while 13 recommend ‘sell’ and six have rated it as ‘underperform’. 10 analysts have ‘hold’ on the scrip. Throughout November, the stock hovered around the Rs 70 mark, and lost 3 per cent during the month.

Among new additions to the SBI MF’s portfolio was SRF, Engineers India, ICICI Securities and newly listed CSB Bank that debuted on the bourses on December 4. The fund house bought 6.3 lakh shares of the bank.

The fund house’s investment team led by Navneet Munot completely exited Apollo Tyres, Clariant Chemicals, Kalpataru Power Transmission, NIIT Tech, Neuland Laboratories and Shreno (unlisted) in November, as per Ace Equity data.

It dumped over 3 crore shares of Vodafone Idea during the month. The telecom services provider is in deep trouble as it owes the government over Rs 53,000 crore apart from registering massive operating losses.

In another theme-based selling by SBI MF, it reduced exposure to insurance stocks as valuations in them touched sky high. The fund house sold 61 lakh shares of ICICI Prudential Life Insurance, 14 lakh shares of HDFC Life Insurance and 6 lakh shares of ICICI Lombard General Insurance. The trailing 12-month price to earnings ratio of HDFC Life stood at 80 while for the ICICI twins were 61 and were, respectively.

Other stocks that the fund house sold in November are ICICI Bank, Ashoka Buildcon, Bandhan Bank, Motherson Sumi, Axis Bank, Aavas Financiers, Minda Corporation and Axis Bank, among others.

November was a tepid month in terms of equity inflow into mutual funds as it crashed 78 per cent month on month to a net Rs 1,311 crore, Amfi data shows. Inflows into equity mutual funds was 6,026.38 crore in October.

SBI MF is the largest equity investor among all mutual fund houses. As of November 30, its equity asset under management (AUM) stood at Rs 1.87 lakh crore and its overall AUM, next only to HDFC AMC’s Rs 3.86 lakh crore and ICICI Prudential AMC’s Rs 3.71 lakh crore.