According to reports from Value Research, mutual funds demonstrated starkly different approaches to beaten-down stocks despite similar price declines. Whirlpool of India and KEC International both lost close to 70% from their three-year highs, yet funds quietly added to Whirlpool while backing out of KEC. The analysis reveals that business quality, not the size of the fall, split the stocks between fund buyers and sellers. The research tracked fund ownership changes quarter by quarter as prices declined, focusing on companies worth more than ₹5,000 crore that had fallen 66% or more from their highest prices in the last three years.
As reported by Value Research, the five stocks with the biggest increase in mutual fund ownership showed strong business fundamentals despite significant price declines. Sonata Software led with a 7.5% increase in ownership, rising from 16.6% to 24% despite a 68.3% fall from its three-year high. Whirlpool of India saw the largest absolute increase, with ownership rising from 29% to 31.8% despite a 69.9% decline. Cohance Lifesciences and Birlasoft also attracted fresh fund interest, while KPIT Technologies showed modest increases despite a 71.2% fall.
According to Value Research, Zee Entertainment Enterprises experienced the most dramatic exit, with funds reducing their stakes from 32.5% to just 3.2% despite a 73.2% fall. KEC International saw a 3.5% reduction in ownership, falling from 24.3% to 20.7%. Shakti Pumps, Jyothy Labs, and Ircon International also witnessed fund exits, with Shakti Pumps losing 2.8% of ownership despite holding more funds. The analysis reveals that fund counts and ownership measurements answer different questions, as stocks can gain holders while losing conviction simultaneously.
As reported by Value Research, the Value Research quality score (ranging from 1 to 10) proved crucial in separating fund buying from selling decisions. The typical stock funds bought into scored 6, while the typical stock they abandoned scored 1, with three of the five sell list companies sitting at the bottom grade. Jyothy Labs was the only strong business in the sell list, scoring 10, yet funds mostly stuck with it, holding about 12% compared to 13.8% before the decline. The research emphasizes that being beaten down is not the same as being cheap, with funds weighing whether there is a business worth owning at the new price rather than simply reacting to the size of the fall.
