Mutual fund is referred to the pool of money which is being managed by professional fund manager. It is a trust which collects money from several investors who tend to share the common investment objective and invests that money in equities, bonds, money market instruments, etc. Retail investors always prefer to buy stock mutual funds are buying. This is because mutual funds purchase the stocks in bulk quantity and this can give immediate push to the stock prices. Apart from this, mutual funds invest after conducting a rigorous process of due diligence. Therefore, retail investors believe that if a stock is being purchased by the mutual fund, it is a good pick. As a result of this, they tend to prefer a stock mutual funds are buying.
Just as stocks’ prices in a mutual fund’s portfolio dictate value, trading activity of MFs is linked to the price of the stocks in which these MFs invest. Whenever mutual funds purchase or sell stocks, the prices of such stocks are affected automatically. In fact, because of their investments size, mutual funds can significantly impact the stock prices in both short term and long term. Trading by mutual fund can push stock prices up or down on a single day, and this herding effect of MFs or several other large institutional investors can result in creating long-lasting trends which can influence stock’s price over time. If an investor purchases a stock mutual funds are buying, it gives a sense of satisfaction to them regarding the basic checks about the company.
Most obvious impact of MF trading on stock prices is the resultant rise or decline it generates. Because stock prices are composite result of all of the single day’s investor activity, any significant purchase or sale of individual stock can have a significant impact on a particular day’s trading range. If the MF decides to purchase a significant quantity of shares of one particular stock, this trade will cause total number of purchases for the day to be higher than number of total sales. This will increase the price of the stock. Therefore, first-time investors tend to go for the stock mutual funds are buying as they believe that this particular stock has potential over the long-term.
Recently, we have seen a huge buying activity from mutual funds in one renewable energy stock. This stock has delivered multi-bagger returns over a short period of time. That correct, readers! We are talking about Suzlon Energy Ltd. This stock appears to be mutual funds’ favourite in August, as mutual funds’ holding in the company increased by ~357% on month-on-month (MoM) basis. Mutual fund houses were able to add more than 50 crore shares of the stock in August 2023, taking the tally to 64.71 crore shares. As per the data from ACE MF, the number of shares held by MFs in July came in at 14.09 crore.
Approximately 64 mutual funds were holding Suzlon Energy in their portfolio by August end, with combined market value coming at ~INR1,567 crore. Shareholding data till the month of August showcased a sustained buying activity by a range of mutual funds. From only ~0.08% stake in quarter ended March, MFs increased their holding to ~0.74% by the June quarter. As of 14th August, mutual holdings came at ~4.98%, exhibiting ~424 basis points jump as compared to June quarter.
Suzlon Group has announced its results for 1Q24. The company generated revenues of INR1,348 crores in 1Q24, with its EBITDA (pre-FX) coming at INR207 crores and EBITDA margin at ~15.4%. Net profit of the company was ~INR101 crores.
1Q24 accelerated the company’s consistent efforts of consolidating and stabilizing performance over the past few quarters. 1Q24 exhibits year-over-year growth and improvement in overall profitability with sustained performance across all the key parameters. After significant efforts to reduce debt in FY23, the company saw healthier and sustainable balance sheet. Now, for the remainder of FY24, the focus is there on financing operations and fulfilling commitments to customers along with other stakeholders. The company plans to maintain strict costs control measures and it is in the process of further optimizing organizational structure to support excellence and continued improvement on the foundations set with over previous 3 years.
Indian wind market should be able to compound at ~50% over the upcoming few years aided by the range of policy actions which favour new wind capacity additions. Experts believe annual wind capacity additions by wind industry to rise to 3.5 GW and 4.5 GW in FY24 and FY25, respectively. With fresh bids moving to round-the-clock, hybrid and peak power, the company expects higher wind energy requirements in the upcoming years.
FY23 was a year of significant achievements for the company. Balance sheet of the company exhibited increased resilience, with 90% net debt reduction over 3 years to INR1,180 crore, bolstered by strong rights issue. Consolidated FY23 PAT before exceptional items touched 6-year high and came at INR167 crore. The company was able to turn its net worth positive after the decade. Operational success was evident, as it saw revenues of INR5,947 crore, and EBIDTA of INR832 crore. These measures were supported by the company’s focus on cost control and efficiency enhancement.
Indian government’s ambitious target of 500 GW installed renewable energy capacity by 2030, which includes 280 GW of solar power and 100 GW of wind power, stems the country’s dedication to green energy. Given the company’s solid order book and supportive policy environment, the company appears to be well-positioned to address increased volume demands of this industry with the help of comprehensive business solutions and innovative product technology.
Conclusion
Finally, it can be concluded that if one mutual fund purchases or sells the security, there is a high probability that others will follow. This is particularly true if a security in question fits their mentioned investment goals. Going after a stock mutual funds are buying should end up rewarding the shareholders, but in the long-term. This effect is mainly because of crowd mentality among experienced and renowned investors.
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