Almost 60% of Mutual Fund Equity AUM is from Nifty 50 stocks!

Published: October 15, 2022 at 6:00 am

As of Aug 31st 2022, 59.5% of the total equity AUM was in Nifty 50 stocks. Here are the details and possible implications. The total equity AUM held by 40 mutual fund AMCs is  Rs. 21,91,563.5357 Crores. The break-up is given below. The tables in this article are sourced from ACE MF.

AMCEquity (Cr.)
SBI Funds Management Limited439043.4077
ICICI Prudential Asset Management Company Limited230763.6000
HDFC Asset Management Company Limited207501.8989
Nippon Life India Asset Management Limited161178.4678
UTI Asset Management Company Private Limited160020.1563
Axis Asset Management Company Ltd.147812.4378
Kotak Mahindra Asset Management Company Limited135613.7226
Aditya Birla Sun Life AMC Limited113486.1516
Mirae Asset Investment Managers (India) Private Limited100822.1384
DSP Investment Managers Private Limited67391.0376
Franklin Templeton Asset Management (India) Private Limited51283.1404
Tata Asset Management Private Limited48608.7606
Canara Robeco Asset Management Company Limited47060.7985
L&T Investment Management Limited40148.0152
Sundaram Asset Management Company Limited32948.7521
Motilal Oswal Asset Management Company Limited27975.1426
IDFC Asset Management Company Limited27830.8230
Invesco Asset Management Company Pvt Ltd.27731.1039
PPFAS Asset Management Pvt. Ltd.24140.5718
Edelweiss Asset Management Limited19421.9196
PGIM India Asset Management Private Limited15374.5738
Baroda BNP Paribas Asset Management India Pvt. Ltd.11093.9904
Quant Money Managers Limited10519.8466
LIC Mutual Fund Asset Management Limited7069.5533
Mahindra Manulife Investment Management Private Limited6693.6648
Union Asset Management Company Pvt. Ltd.6093.5907
HSBC Global Asset Management (India) Private Limited4302.4920
NJ Asset Management Private Limited4167.3896
IIFL Asset Management Co. Ltd.3152.9540
IDBI Asset Management Ltd.2750.0523
ITI Asset Management Limited2480.3253
Bank of India Investment Managers Private Limited2139.9894
Navi AMC Limited1205.3114
Quantum Asset Management Company Private Limited1043.1916
Samco Asset Management Pvt. Ltd.632.6831
WhiteOak Capital Asset Management Limited615.4629
JM Financial Asset Management Private Limited565.5782
Taurus Asset Management Company Limited507.2942
Shriram Asset Management Company Limited187.9205
Indiabulls Asset Management Company Limited185.6252

Next, we look at the market value of the Nifty 50 stocks held by these AMCs.

Company NameMarket Value (Cr.)
ICICI Bank Ltd.149451.2382
HDFC Bank Ltd.121788.0549
Reliance Industries Ltd.98039.7774
Infosys Ltd.93498.9388
State Bank Of India62202.2928
Axis Bank Ltd.52477.4478
Housing Development Finance Corporation Ltd.50566.4981
Larsen & Toubro Ltd.47578.4281
Bharti Airtel Ltd.44598.6619
Tata Consultancy Services Ltd.38719.7429
ITC Ltd.38557.5003
Bajaj Finance Ltd.37634.6210
Kotak Mahindra Bank Ltd.36180.9797
NTPC Ltd.28841.0456
Maruti Suzuki India Ltd.27975.5568
Sun Pharmaceutical Industries Ltd.26007.6251
HCL Technologies Ltd.25351.9764
Mahindra & Mahindra Ltd.23448.5806
Hindustan Unilever Ltd.22663.7788
Ultratech Cement Ltd.17195.6021
SBI Life Insurance Company Ltd.15114.2900
Coal India Ltd.14111.9946
Oil & Natural Gas Corporation Ltd.13569.9528
Tech Mahindra Ltd.13134.4927
Divi’s Laboratories Ltd.12922.2652
Power Grid Corporation Of India Ltd.12829.6395
Asian Paints Ltd.11844.5657
Titan Company Ltd.11835.0594
Hindalco Industries Ltd.11748.9399
Cipla Ltd.11278.2278
Tata Motors Ltd.11037.7766
Tata Steel Ltd.10841.4966
Bajaj Finserv Ltd.10838.6845
Dr. Reddy’s Laboratories Ltd.9186.7981
IndusInd Bank Ltd.8802.2604
Adani Ports and Special Economic Zone Ltd.8621.7720
Nestle India Ltd.7547.0173
Wipro Ltd.6496.5573
Bharat Petroleum Corporation Ltd.6380.7973
Eicher Motors Ltd.6035.5361
Shree Cement Ltd.5690.7126
Hero MotoCorp Ltd.5639.6500
HDFC Life Insurance Co Ltd.5447.4187
Apollo Hospitals Enterprise Ltd.5012.5313
Britannia Industries Ltd.4874.4126
Bajaj Auto Ltd.4680.0393
Grasim Industries Ltd.4664.7461
Tata Consumer Products Ltd.4641.0957
UPL Ltd.3292.2678
JSW Steel Ltd.3110.0646

The total AUM from these 50 stocks is Rs. 13,04,009.41 Crores. Therefore these stocks represent 59.5% of the total equity AUM (13,04,009.41/21,91,563.5357). The AUM from the top 10 stocks of Nifty 50 is Rs. 6,97,044.9372. So their contribution is 31.8%.

Most of this AUM is held by active mutual funds. The total passive AUM (excluding factor-based funds, mid cap and small cap funds) is approximately Rs. 3,31,157.3656 Crores.

Even if we assume the entire passive comprises only Nifty 50 stocks (this is incorrect, but do play along), 44.4% of the total Active equity, AUM was in Nifty 50 stocks and 16.7% of Nifty 50 top 10 stocks.

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There are two reasons why active mutual funds hold such high quantities of NIfty 50 stocks. (1) They are large cap oriented, which is part of their investment universe and (2) they use them for liquidity. Even small cap mutual funds hold sizeable large cap stocks to hand in and outflows. There is, of course, nothing wrong with this.

According to SEBI registered fee-only advisory Avinash Luthria, “From the point of view of an individual active MF manager in an established MF house, it is rational to be a closet indexer or index hugger, i.e. ‘claiming to manage the fund actively when in reality the fund is very similar to the index”.

“This minimizes the risk of the fund massively underperforming the index for a long stretch of time and the individual active MF manager getting fired by their employer. This may be true whether or not the individual active MF manager has the skill to beat the index. This is true if one adopts my world-view that zero active MF managers in India have the skill to beat the index (due to randomness, a minority of active MF managers would have beaten the index in the past, and a minority of active MF managers will beat the index in the future)”.

“But this may also be true in the opposite world-view. Even if, by some miracle, one active MF manager in India has the skill to beat the index, he may still underperform the index for many years and get fired from his job before he can beat the index”.

“For a simple example, let’s look at it from the point of view of a Largecap active MF manager. For a Largecap active MF manager, the Nifty 50 index is in the ballpark of 87% of their benchmark. So from the point of view of an active MF manager who is a closet indexer, it is rational to have around 87% of their portfolio in Nifty 50 stocks”.

“Yes, the fund will underperform the index to some extent, but the fund manager can make up creative stories that the underperformance is due to some temporary factors (e.g. the underperformance is caused by the increase in AUM of passive index funds) and hence clients should wait for a longer period of time before they judge the fund. Until then, the active MF manager continues to earn a high salary”.

“The exception could be the CIO of an MF house with a tiny AUM. Here, some CIOs may decide that it is better to have a portfolio that is very different from the index. If they are lucky, they will get a large AUM and fees. If they are unlucky, then they may have to shut down the fund house. But anyway, as a MF house with a tiny AUM, the business was not viable, and they were anyway going to shut down the business. So they have nothing much to lose and something to gain from deviating from the index. So it may be rational for some CIOs of MF houses with tiny AUMs to have a portfolio that is very different from the index. But the action of a tiny MF house will not make much difference to the aggregate data of the active MF industry as a whole.”

There is a possible downside to active mutual funds holding such high quantities of NIfty 50 stocks. An index is just a basket of stocks. If more people invest in these stocks preferentially, the index will increase. It is not a secret that institutional investors prefer large cap stocks.

They prefer the relative stability of large cap stocks and this, in turn, stabilises the index. This applies to foreign and domestic institutional investors (MF AMCs are one such entity). Also, see: 10 stocks hold nearly 46% of FPI money in India. The ten stocks are HDFC Bank, HDFC, Reliance Industries, ICICI Bank, Infosys, TCS, Kotak Mahindra Bank, Axis Bank, Bharti Airtel, and HUL.

This could possibly be one reason for the explicit difficulty observed over the last few years in the underperformance of active mutual funds (Avinash is not enthusiastic about this view, though!). This is, however, not a recent phenomenon. See: Poor performance of active mutual funds: Is this a recent development?

Look at the weights of the 10 ten Nifty 50 stocks. Just ten stocks constitute 58% of the Nifty!

  1. Reliance Industries Ltd. 11.69%
  2. HDFC Bank Ltd. 8.37%
  3. ICICI Bank Ltd. 7.92%
  4. Infosys Ltd. 7.02%
  5. Housing Development Finance Corporation 5.69%
  6. Tata Consultancy Services Ltd. 4.27%
  7. Kotak Mahindra Bank Ltd. 3.61%
  8. ITC Ltd. 3.60%
  9. Hindustan Unilever Ltd. 3.05%
  10. Larsen & Toubro Ltd. 2.98%

Active mutual fund and portfolio managers lend momentum to the Nifty 50 each time they buy these stocks, regardless of their motivations. This could possibly make it harder for them to beat the index since not enough (stable) money is chasing the rest of the market (say, beyond the top 100 stocks). Matters become worse if the interest in mid cap and small cap stocks becomes lower than usual. This is a mixed blessing, and there is not much we can do about it except shift to index funds!

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