MFs’ favourite mid-caps could offer over 10% returns in a year

Mumbai: Mutual fund managers have consistently purchased about 70 mid-cap stocks over each of the past six quarters, even amidst the volatile fluctuations in the stock market.

Among them, about 20 stocks, including Zee Entertainment, FSN E-commerce, Restaurant Brand, GMM Pfaudler, Karnataka Bank, Prince Pipes and others, could give minimum returns of 10% over the next 12 months, according to Bloomberg consensus estimates.

Analysts suggest this persistent uptrend in mutual fund holdings reflects the confidence fund managers have in these businesses.

“With mid-cap and small-cap indices running on full throttle, it becomes much more important to cherry-pick stocks from the universe that can justify the valuations in order to provide downside protection,” said Vaibhav Shah, Fund Manager, Torus ORO PMS. “A very limited universe has witnessed increased buying activities from fund managers mainly on account of either inflection point in terms of financials or strong runway for growth, which can justify the valuations already baked in the price.”


The stocks in which mutual funds have raised their holdings have consistently given an average return of 24% in the past one year.Mutual funds have raised stakes in Zee Entertainment for each of the past six quarters from 22.34% to 32.49% on expectation of its merger with Sony Entertainment. However, the merger was called off recently. MF’s stake in Nykaa’s parent FSN E-Commerce has risen 8.81% in the past six quarters, while in Restaurant Brand, it has risen 7.69% during this period.
Domestic mutual funds have bought shares worth ₹1.75 lakh crore in 2023 after investing ₹1.8 lakh crores in the previous year. While Nifty rallied 20% last year, Nifty Midcap 100 and Nifty Smallcap 100 have gained 48% and 57%, respectively, during this period.Recently, MFs have added exposure to a new set of companies, offering a positive outlook for retail investors, as strong hands increase their stake, according to analysts.

“New-age companies have disruptive business models compared to traditional ones, and they have a sharp growth rate of customer addition and high brand value in their online and young client bases,” said Vinod Nair, head of Research Geojit Financial Services. “After the elevated IPO listing, they are available at an attractive price point, inviting domestic institutional buying.”

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