The searing rally in Reliance Industries Ltd. shares is becoming a problem for Indian equity mutual funds.
The stock has more than doubled since a March low, thanks to President Mukesh Ambani’s fundraising blitz. The rise has increased the company’s weighting on the S&P BSE Sensex to 17.4%, from 11% at the end of 2019.
Money managers have hit a regulatory wall due to the increase. They cannot buy more of the most valuable company in India as actively managed plans cannot own more than 10% of a single share. This means that the funds cannot add upward stocks, such as Reliance, and thus risk falling behind the market, said Nilesh Shah, managing director of Kotak Asset Management Co.
“Clients don’t understand this technicality, so it’s difficult to explain to them why a particular fund is underperforming,” said Shah, who is also president of the Mutual Fund Association in India. “The funds have no choice but to report earnings in such cases to comply. We have asked Sebi to allow us to align our holdings with changes in the weighting of the shares.”
Apathetic performance has been one of the reasons behind the dwindling popularity of equity funds in recent months, with many people making direct bets in a market that has eliminated most of the virus-induced losses. Large-cap funds have risen 8% on average over the past six months, data from the Morningstar Investment Adviser website shows. Sensex is up 9% in the same period.
Reliance shares rose 12% to a record high last week, pushing the company’s market value beyond $ 200 billion, as people familiar with said Amazon.com Inc. and KKR & Co. are in the dark. conversations to buy stakes in your retail business.
But money managers cut their combined holdings in Reliance by 5 million shares worth 10.3 billion rupees in August, making them the best-selling shares by value, Edelweiss Financial Services Ltd. said in a note on Friday.
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