Where the crowds are: Most overvalued stocks
According to the latest mutual fund data analyzed by Elara Securities, around 25% of all inflows into equity funds this year have flowed into just six stocks, indicating a broad consensus among fund managers:Axis Bank, Maruti Suzuki, Eternal Ltd, State Bank of India, ICICI Bank and SBI Life Insurance are among the most overcrowded large caps. For example, Axis Bank has a mutual fund that owns 52% more shares than its weighting in the benchmark indices, a sign of strong institutional bias and crowding.
Maruti Suzuki and Eternal are also overweight, reflecting clear alignment among the major mutual funds on their prospects.
This crowding out effect is a double-edged sword: while the consensus may be driven by strong earnings and visibility, it also means that these stocks could see sharper outflows if sentiments turn. Large holdings of investment funds sometimes lead to increased volatility during corrections. Also read | Just 19 stocks will account for half of mutual fund inflows of Rs 2.7 lakh crore by 2025
Most Undervalued Stocks
On the other hand, several prominent stocks remain noticeably underserved by mutual funds, even as they dominate benchmark indices or broader market narratives:
Reliance Industries, the largest stock by market capitalization, is 26% underweight against its index weighting in mutual fund portfolios. This indicates skepticism about short-term outperformance or concerns about valuation and sector allocation.
HDFC Bank, long considered a bellwether for smart money, is also undervalued by 9% relative to its index weighting despite maintaining high visibility and liquidity.
ITC and Tata Consultancy Services (TCS), both consumer and technology blue chips, stand out as major underweights. Notably, ITC is 28% underutilized, possibly reflecting sector rotation or ESG constraints.
Other prominent names in the understaffed list include Hindustan Unilever, JSW Steel, Titan Company, Grasim Industries, Nestle India, Adani Ports and Bajaj Finance.
The reasons for this widespread under-ownership among heavyweights range from earnings uncertainty, sector rotation (towards financials, autos and pharmaceuticals), regulatory risks to simple valuation fatigue.
Also read | Mukesh Ambani crashes the fast trading game. Can Reliance disrupt Blinkit, Swiggy and Zepto’s 10-minute game?
Trends at fund houses
Ownership preference varies not only at the stock level, but also between asset managers. Leading MFs like HDFC, ICICI Prudential and SBI Mutual Fund are showing consensus overweights in select banks and autos, while dramatically under-exposing themselves to heavyweights in FMCG, technology and metals.
The underweight positions are particularly strong in the energy and FMCG sectors, as mutual funds seek tactical alpha outside of sectors that have underperformed or are considered crowded by global investors.
For investors, strong positioning in large, popular stocks underlines the need to monitor not only fundamentals, but also ownership trends and institutional flows. Overhanded stocks can be vulnerable to sharp corrections during periods of market uncertainty, while underleveraged blue chips can provide opportunities as sentiment shifts.
In an increasingly polarized market, being aware of where the big money is congregating and where it is conspicuously absent can be as important as reading the balance sheet or the latest earnings report. The market’s next leadership could well come from today’s undervalued giants as institutional preferences are reset in a volatile investment landscape.
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