On 16th January 2018, India’s benchmark stock market indices Sensex touched the 35,000 mark.

This marks a new milestone in the journey of Sensex, which has risen more than 15% in the past one year. This spike in the upward direction was fuelled by government’s decision to reduce its planned borrowings to ₹20,000 crore from ₹50,000 crore.

India’s fiscal deficit had reached 112% of the full year budget expenditure in November. Coupled with increased crude oil prices, Government’s decision to borrow ₹50,000 crore last month had led the market to believe that this year fiscal slippage would be beyond expected initially.

However, with this latest decision to reduce the government borrowings, the market is rejoiced in believing that the fiscal slippage can indeed be contained this year. The direct impact was visible in Sensex touching a high of 35,081.82 points. Similar upside movement was visible in the NIFTY index as well.

Foreign portfolio investors (FPIs) purchased shares worth a net Rs 693.17 crore on January 16.

“IT and Banks outperformed in trade today leading the Sensex above the 35k levels to their highest point ever. ICICI, Axis, and SBI were the top performers of the session. Optimism is omnipresent in the markets right now, with everyone calling on higher levels shortly, DII funds continue to pour in.” said Nikhil Kamath, Co-Founder, and Head of Trading, Zerodha.
Among the 50 stocks in the NIFTY index, 38 of them were trading in green. Nifty Bank index, Following SENSEX’s footsteps, hit an all-time high of 26,324. Axis Bank, YES Bank, SBI were among the top performers in the banking sector. The other top performers were Infosys, L&T.

Impact on Mutual Funds

As with equity, the impact of the reduced debt raising plan is expected to fuel upside movement in the mutual funds’ space as well. This impact can be studied by analyzing the sector allocations and investment into particular blue-chip stocks of various top recommended funds for the year 2018. These funds have substantial investments in these select stocks and would set to benefit from the spike in these stocks.

SBI Bluechip Fund

Returns: for 1 year- 30.85%; for 3 years- 14.2%;for 5 years-18.44%

Risk: Moderately high

Minimum SIP amount: INR 500

Holdings: It invests 82.1% in large-cap categories and remaining 17.9% in mid-cap categories.

The top 10 holdings of the firm (in the highest to lowest order is as shown below)

Company name Sector
CBLO(CCIL) Current Assets(Money Market)
HDFC Bank Ltd. Financial Services
Larsen & Toubro Ltd. Construction
Nestle India Ltd. Consumer Goods
Mahindra & Mahindra Ltd. Automobile
State Bank of India Financial Services
Hindustan Petroleum Corporation Ltd. Energy
Bharat Electronics Ltd. Industrial Manufacturing
ITC Ltd. Consumer Goods
IndusInd Bank Ltd. Financial Services

 

State Bank of India accounts for 2.55% of the investments in this fund.  ITC accounts for about 2.64% of the investments for this fund.

These stocks are expected to provide good returns to the investors of these mutual funds as well.

Mirae Asset India Opportunities Fund

Returns: for 1 year- 38.74%; for 3 years- 15.95%;for 5 years-20.84%

Risk: Moderately high

Minimum SIP amount: INR 1000

Holdings:

It invests 83.4% in large-cap categories and remaining 16.6% in mid-cap categories.

Its top 10 holdings include:

Company name Sector
HDFC Bank Ltd. Financial Services
ICICI Bank Ltd. Financial Services
State Bank of India Financial Services
Infosys Ltd. IT
Larsen & Toubro Ltd. Construction
Maruti Suzuki India Ltd. Automobile
Reliance Industries Ltd. Energy
Tata Steel Ltd. Metals
Grasim Industries Ltd. Cement and Cement Production

 

SBI accounts for 3.73% of the total holdings of this fund. HDFC Bank accounts for 8.17%. We see that this fund is positive towards the financial services sector and the recent trend was a welcome event for the fund in particular and large-cap mutual funds in general.

Reliance Top 200 Fund

Returns: for 1 year-37.4 %; for 3 years- 12.99%;for 5 years- 18.02%

Risk: Moderately high

Minimum SIP amount: INR 500

Holdings: It invests 82.6% in large-cap categories and remaining 17.4% in mid-cap categories

Its top 10 holdings include:

Company name Sector
ITC Ltd. Consumer goods
State Bank of India Financial services
Infosys Ltd. IT
ICICI Bank Ltd. Financial Services
HDFC Bank Ltd. Financial Services
Larsen & Toubro Ltd. Construction
HCL Technologies Ltd. IT
Tata Steel Ltd. Metals
Mahindra & Mahindra Ltd. Automobile
Axis Bank Ltd. Financial Services

This large-cap fund is also positive on the financial services with investments in stocks such as SBI, ICICI Bank, HDFC Bank, Axis Bank among others. With 38% holdings allocated to the financial services sector, this fund is expected to gain from the recent government decision.

Conclusions

Thereby we can safely conclude that the stock price increase will have a positive impact on the mutual fund space as well. With increased traction in the sector, mutual fund sector is set to experience a manifold increase in the Assets under Management (AUM) in particular and investments in general.

Happy investing!

Disclaimer: the views expressed here are those of the author. Mutual funds are subject to market risks. Please read the offer document before investing.