Mutual fund managers are skeptical of the market's direction in the future, however, they are capitalising on the market's fall by picking shares of mid and small-cap companies.
“We are value investing in the market. We have been buying mid and small-cap companies,” said a chief investment officer from a mid-sized fund house.
Speaking to CNBC TV18, Nilesh Shah, Managing Director, Kotak Mutual Fund said, “We will go out on our limb to say that this is the time to buy small and midcaps.”
“See what corrective steps will be taken by the government and based on that, one can start doing systematic transfer plans (STP) into small and midcap stocks over the next 6-18 months.”
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According to dealers, mutual funds were buying shares of cement, construction companies from the market.
Market sentiment
Fund managers opined that the market's sentiment is impaired because of a slew of factors like the ongoing NBFC crisis, FPI outflows and poor economic prospects in the future, among others.
According to the SEBI data, foreign investors have pulled out over $2 billion from the stock market in July.
Fund houses are expecting the market to hover around the same levels for some more time.
According to fund managers, the recent slow down in the economy is leading to a fall in the market.
The Indian market witnessed its worst July since 2002, as the Nifty and the Sensex fell by 5.68 percent and 4.86 percent, their hardest fall in 17 years for the month.
The Nifty50 had fallen 9.3 percent in July 2002, while the Sensex dropped nearly 8 percent.
While the market traded in the green for most of July, a delayed monsoon, muted corporate results, an overhang on economic growth, and several other factors weighed heavy on investor sentiment.
One of the main reasons for the massive fall is persistent selling by foreign investors who have pulled out more than Rs 16,000 crore from the cash segment in July, while domestic institutional investors poured in more than Rs 20,000 crore in the same period.
In the Budget, the government proposed a higher tax surcharge for individuals, trusts, Hindu Undivided Families, firms and associations of persons (AoPs). Higher tax surcharge will hit those foreign portfolio investors (FPIs), which are structured as trusts or AoPs.
Fund managers said the market is now awaiting the RBI meet, which is scheduled next week. There have been three rate cuts in 2019 and the market is expecting another rate cut of 25 basis points; especially after the downside risk in earnings and lower monsoon.
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