An analysis of mutual fund data shows that asset managers have been consistently reducing stake in at least 36 smallcap stocks for the last four quarters. Out of them, only six – Johnson Controls – Hitachi Air Conditioning India, GHCL, Accelya Solutions, Sterlite Technologies, Greaves Cotton and TCNS Clothing – have given negative returns in the last one year.
Out of the 36 stocks in which MFs took a bearish stance, 5 of them have turned multibaggers – Force Motors, Texmaco Rail & Engineering,
Action Construction Equipment, Jyothy Labs and ITD Cementation India – to give returns going up to 174% in the last one year.
Other prominent smallcaps that went up despite negative stance taken by MFs are Finolex Cables, GRSE, BEML, Narayana Hrudayalaya, ICRA and Tata Metaliks.
Here’s a look at the multibaggers that have been on the sell list of mutual funds:
1) Force Motors
MF ownership in the smallcap auto stock has gone down from 1.83% in September 2022 to 0.94% in September 2023. Motilal Oswal Mutual Fund even made a complete exit in the stock last month.
In the last 1 year, the stock, which will be included in the MSCI India Smallcap Index with effect from December 1, has however rallied 174%.
In the September quarter, the automaker reported a nearly five-fold rise in profit due to strong demand for its multi-seater vans and buses.
The company, which also makes engines and axles for German automakers BMW and Mercedes Benz’s cars in India, said Q2 revenue was up 42.5%.
2) Texmaco Rail & Engineering
MF ownership in this rail stock has gone down from 7.65% to 6.03% in the last one year but the counter is up 164%. Texmaco, a significant player in the freight rolling stock sector, is a major beneficiary of the National Rail Plan and recently secured a substantial order for over 20,000 wagons in May.
With plans to become debt-free by FY26, it is well-positioned to restructure and optimize its operations, potentially leading to an improved earnings trajectory in the near future, Dhirendra Tiwari of Antique Stock Broking said.
In the September quarter, the firm reported a consolidated net profit of Rs 24.6 crore, marking a 60% increase compared to the net profit of Rs 15.4 crore recorded in the same period last year. Texmaco Rail & Engineering operates two business segments – the heavy engineering division and the foundry division. It manufactures a range of products, including railway freight cars, pressure vessels and agricultural machinery.
3) Action Construction Equipment
In September last year, MFs owned about 2.87% of the company but have now gradually reduced their stake to below 1% level. Money managers missed the 162% rally in this stock.
4) Jyothy Labs
The FMCG firm, which sells household products like Ujala and Pril, saw MF stake going down from 14.32% to 12.28% despite the stock going up by 136%.
In the September quarter, Jyothy Labs saw its revenue growing by 11% YoY (consistent double-digit growth in the last 12 quarters), mainly driven by volume. The company has guided for 16-17% EBITDA margin for FY24.
“We expect revenue/earnings to grow at ~11%/32% CAGR over FY23-25E, RoE to improve to 21% (15.6% in FY23), value JLL at 37x FY25 P/E,” Geojit Financial said. The brokerage has a sell rating on the company with a target price of Rs 405.
5) ITD Cementation India
Mutual fund ownership in this smallcap civil construction stock, which has a market capitalisation of less than Rs 5,000 crore, has fallen drastically from 8.25% to 2.60% in just four quarters ending September 2023. Latest data shows MFs sold another 1.9 million shares of the company in October.
The stock has, however, more than doubled money in a year’s time with retail investors showing faith.
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