Mutual fund investors chase momentum; capex cycle, Lupin, ITC, Persistent, Inox Wind in focus

The widely held view is that mutual fund investors have become a mature lot over the last few years. This is also evident from the way in which most investors see a sharp market correction as an opportunity to invest rather than fleeing in panic. And yet, a closer reading of the inflow trends seems to indicate that this maturity may be a bit exaggerated. An analysis by ICICI Direct’s Sachin Jain shows that like day traders, many mutual fund investors too may be chasing momentum.

Key findings from the report:

• Inflows across category are concentrated in few outperforming funds.
• In midcaps, 5 schemes accounted for 75 percent of inflows in the last six months. In small caps 3 funds accounted for 61 percent of inflows, and in large caps 3 schemes accounted for 74 percent of the inflows.
• Flows continue to chase performance.
• At scheme level, investments are done at peak performance and withdrawals are made when funds have underperformed.
• In many funds, investors end up exiting at lows and investing at highs particularly in outperforming

Short call view: Investors who entered the market in the last four years are yet to see a bear phase that has lasted for even a year. Should the market give negative returns for more than a year, the trend of rising net inflows could reverse just as swiftly.

Capex cycle
Projects under implementation slowed while new investments declined at a faster pace on a YoY basis during the March quarter, according to Morgan Stanley.
“We expect the trend in capex to recover in 2HF25, as domestic demand remains buoyant and the election outcome ensures policy continuity,” write Morgan Stanley’s Upasana Chachra and Bani Gambhir

Lupin (Rs 1,759.30, +7.9%)

Kotak Institutional Equities double upgrades rating to ‘add’

Bull case: Line up of high-margin, low competition US launches to ensure strong growth visibility. Street may be underestimating revenue potential from hyponatremia drug Tolvaptan, to be launched in FY26, says Kotak.

Bear case: Faster than anticipated decline in Albuterol contribution and inability to expand market share for Spiriva could hit growth.

ITC (Rs 429, +0.2%)

Management plans to expand product portfolio

Bull case: The management is hopeful for positive steps by the government in the upcoming budget, which should boost consumption expenditure. Stock has been consolidating for a while now.

Bear case: If Budget hikes excise duty on cigarettes, then it could hurt demand. Muted rural trends and tepid demand in packaging industry can also dent the stock’s growth outlook.

Persistent Systems (Rs 4,760, +4%)

Shares extended gains for sixth session following its acquisition of US-based AI firm Starfish.

Bull Case: The acquisition to strengthen AI offerings and improve presence in contact centre automation domain. Further, it provides access to fortune 500 clients, opening doors for cross-selling.

Bear Case: Focusing on top-line growth could put pressure on margins and lead to lower profits near term.

Inox Wind (Rs 157.15, +10.3%)

Received a Rs 900-crore capital infusion from promoter Inox Wind Energy Limited (IWEL).

Bull Case: Robust order book, ramp-up in execution, technological advancements, and zero interest-bearing debt position it well to capture market share in India’s growing wind sector. Deleveraged balance sheet and significant tax shield added boosters.

Bear Case: There are risks of execution delays, site availability issues, renewable curtailment, transmission evacuation challenges, auction delays, rising competition, increasing IPP market share, and potential discontinuance of the ISTS waiver.

(With inputs from Harshita, Veer, Vaibhavi and Lovisha)