Most wanted stocks

A Money Today-value research study of the stocks that mutual fund managers stacked up over the past one year.

R Shree Ram | Print Edition: August 2010

Patience pays, especially when it comes to stocks. Any investor will vouch for this. If you give stock investments enough time to grow, they will churn out bountiful returns. But patience alone isn't enough. You also need solid research and analysis to pick the right stocks.

However, most retail investors skip these crucial steps of the investing process and leapfrog into the final stage, basing their purchases on 'hot tips' from friends, colleagues and brokers. Result: they often buy high and sell low, the opposite of what investment gurus advise. Doing your own research is the best way out. But this is easier said than done.

There are 5,287 companies listed on the Indian stock exchanges. Sifting through brokerage reports on these stocks or poring over their balance sheets is not the best way to spend a weekend. Thankfully, there is a smarter way. Find out what the best minds on Dalal Street are buying and follow in their footsteps.

The 404 equity mutual funds in the country have invested roughly Rs 1.97 lakh crore in stocks. Each mutual fund has an army of equity analysts, which puts companies under the financial equivalent of an MRI scanner. Every strength is closely inspected, every weakness is studied in detail.

Opportunities are explored, threats are scrutinised. Only when a company is found fit is the investment team given the go ahead. Don't take our word for it. In the past one year, the Sensex has risen 25.65%, while the average diversified equity fund has climbed 38.42%.

Clearly, fund managers know what they are doing. For you and me, it means that we can rarely go wrong when we buy stocks in which these financial whiz kids invest. Following in the footsteps of smart money, however, is not as simple as it seems. Yes, mutual funds are choosy, but the universe they invest in is vast.

The latest data on mutual fund holdings shows that they hold shares of 705 companies. It's a heady mix of large-caps, mid-caps and small-caps. What do you buy? this is where our cover story will come in handy. money today teamed up with value research to conduct a comprehensive study of mutual fund portfolios and identify the stocks most wanted by fund managers.

However, a simple aggregation of the portfolios of all mutual funds yielded predictable results. reliance industries was at the top, followed by the software giant infosys, financial powerhouse sbi and private sector major icici bank. the bigger problem was the distorted picture that such a listing gave. bharti airtel is the eleventh most widely held stock by funds.

However, the funds were busy trying to get rid of the bharti shares in the past year rather than add more. the number of bharti shares held by funds has come down from 20.56 crore (adjusted for split in july 2009) in may 2009 to 9.86 crore in may 2010. while these blue-chips were widely held, some were not really the most wanted (see story on page 40).

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