The rally which began with smaller gains after the sharp correction of 13.6% in the month of May turned significantly stronger in the month of August with Sensex and Nifty realizing higher levels. Pause in the rate hikes by US Fed and substantial inflows from FIIs buoyed the sentiments and made India best performing emerging market in August 2006..Barring few corrections market had a smooth journey and Sensex and Nifty gained 8.89% and 8.61% respectively thereby ending the month at 11699 and 3413. FII’s were on buying spree after the pause in Fed rate hike and ended the month with net investments of Rs 4643 crore compared to the last month’s net investments of Rs 1145 crore. However MFs that were sellers in equities since last two months turned buyers and bought stocks worth Rs 426 crore during the month of August. Top 10 scrips of Sensex as per the returns generated by them in last one year and the strategy MFs followed regarding these scrips in the month of June were considered for this analysis. Topping the list is BHEL which returned close to 111.56% in last one year.

The stocks registered impressive gains as markets gained momentum. Mutual Funds used this opportunity for profit booking in some stocks while consolidating their holding in others. Except Maruti, Cipla, Grasim and Dr. Reddy mutual funds reduced their exposure in all the stocks under consideration. Auto, Cement and Pharma stocks were preferred choices of MFs portfolio in the month of August. Reliance, Tata Motors and Cipla were the top held stocks by mutual funds in terms of no. shares. Dr Reddy and Maruti witnessed hefty buying from mutual funds and hiked weightage by 25.14% and 9.17% respectively. Bajaj Auto and Tata Motors were the stock where mutual funds were large sellers during the month. However Infosys, Reliance industries, ITC, BHEL and ONGC were top five stocks that dominated the portfolio of mutual funds in the month of August considering the no. of schemes having exposure greater than 5%.

** (Returns of Sensex for one year period September 2005-August 2006)

*(Returns of Sensex for one month period ended on August 2006)

BHEL was the top gainer among Sensex scrips in last one year with returns of 111.56%. The MFs decreased their holding in the scrip from 9.26 million shares in July 2006 to 9.13 million shares in August 2006. HDFC Mutual Fund in twelve of its schemes was holding 19.50 lakh shares of the stock, which was highest among all fund houses. The fund further increased its exposure in the scrip buying 1.89 lakh shares. UTI Mutual Fund with 11.57 lakh shares was distant second and pared the exposure in the scrip for the month of August selling 89500 shares. UTI Leadership Equity Fund sold maximum 70000 shares out of 3.35 lakh shares held. Prudential ICICI Mutual Fund sold the highest 1.71 lakh shares through six of its equity schemes. Of the 25 fund houses holding the scrip 16 fund houses have reduced their exposure for the month of August while HDFC Mutual Fund and HSBC MF etc. hiked their exposure.

Reliance was the second best performer to return 101.98% in last one year period. 21 fund houses in 169 schemes had exposure in this scrip totaling 30.96 million shares, down 2.18% compared to the previous month. Reliance Mutual Fund pared exposure selling 6.19 lakh shares but still holds maximum 6.1 million shares. Franklin Templeton Mutual Fund followed it and was holding 4.18 million shares through eleven of its schemes. It bought maximum 1.9 million shares for the considered month. HDFC MF turned out to be major seller and decreased the exposure in the scrip by selling 1.28 million shares. HDFC Equity Fund was the biggest seller of the stock and offloaded 1.2 million shares out of the total 1.7 million shares held.

Bajaj Auto posted impressive 90.82% returns in last one year. Twenty MFs in 82 schemes had 1.50 million shares with them in August 2006 as against 1.64 million shares in July end. Ten Fund houses out of the twenty two MFs decreased their exposure in the month of August. UTI MF offloaded 61885 shares and was the biggest seller among all the fund houses. SBI MF holding highest 4.78 lakh shares through 6 of its schemes marginally trimmed the exposure and sold 38823 shares. However there were no major buyers. DSPML MF bought maximum 16915 shares.

ACC, the cement major, topped the charts with returns of 90.12% in last one year. MFs marginally reduced their holding from 10.33 million shares in July 2006 to 10.28 million shares as of August end. UTI MF is holding highest 30.30 lakh shares with it in 16 of its schemes and further hiked its exposure adding 1.54 lakh shares. UTI Equity Fund had maximum 8.37 lakh shares and further bought 2.7 lakh shares. HSBC Mutual Fund followed it having 9.46 lakh shares and sold 1.22 lakh shares in HSBC Advantage India Fund. Out of the 16 fund houses holding this scrip eleven fund houses have decreased their exposure.

Maruti was another stock on the charts which delivered 82.89% returns in last one year. 18 fund houses in 89 schemes had exposure in this scrip. The MFs increased their exposure by 9.1% in Maruti from 12.82 million shares in July to 13.99 million shares in August 2006.HDFC Mutual Fund is holding highest 34.30 lakh shares and offloaded maximum 2.59 lakh shares. Reliance Mutual Fund followed it having 26.02 lakh shares in seven of its schemes. It further acquired 90000 shares. Among all the fund houses HSBC Mutual Fund bought highest 4.79 lakh shares in the considered month through two of its schemes HSBC Advantage India Fund and HSBC Equity Fund. HSBC Advantage India Fund alone acquired 3.72 lakh shares. Franklin Mutual Fund was another fund to consolidate its holding by buying 3.02 lakh shares and holds 27.03 lakh shares.

Cipla Ltd., a Pharma stock pulled off impressive 86.91% returns in last one year. The MFs had 21.43 million shares of this stock in the month of August. The figure was 20.11 million shares in the month of July. So it seems that there was some buying by the fund managers as far as this particular scrip is concerned.20 fund houses through 76 schemes had exposure in this scrip. Tata Mutual Fund was the biggest buyer and acquired 3.88 lakh shares and accounts for 4.29 lakh shares for the month of August. SBI MF holds the highest 5.45 million shares and marginally pared the exposure. HDFC Mutual Fund sold 1.98 lakh shares but still holds 4 million shares. Prudential ICICI Mutual Fund was the major seller of the stock and offloaded 3.88 lakh shares through four of its schemes.