Mutual Funds Prefer Large IT Firms Over Mid-Sized Peers

Mutual funds increased their holdings in three of India’s biggest information technology companies on improving outlook and have cut exposure to costlier mid-sized peers in the quarter ended March.

Mutual fund stake in Tata Consultancy Services Ltd., Infosys Ltd. and Wipro Ltd. rose during the quarter, according to latest shareholding data available on BSE. In comparison, if fell for mid-cap firms like Oracle Financial Services Ltd. and Mindtree Ltd.

Shares of mid-sized software services providers have rallied 10-65 percent so far in this year compared to 2.5-20 percent gain in the large-cap IT stocks. Not only the mid-cap firms trade at a premium but also offer a lower return potential.

Improving outlook for large-cap IT and higher valuations for mid-cap firms seems to be the reason behind the shifting interest of the mutual industry, according to Urmil Shah, research analyst at IDBI Capital.