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Did Hedge Funds Make The Right Call On ICICI Bank Limited (IBN) ?

How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don’t always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding ICICI Bank Limited (NYSE:IBN) and determine whether hedge funds had an edge regarding this stock.

ICICI Bank Limited (NYSE:IBN) investors should be aware of a decrease in hedge fund interest recently. IBN was in 24 hedge funds’ portfolios at the end of March. There were 29 hedge funds in our database with IBN positions at the end of the previous quarter. Our calculations also showed that IBN isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks).

Video: Watch our video about the top 5 most popular hedge fund stocks.

Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. Our research was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 58 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 36% through May 18th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Discovery Capital Management

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, on one site we found out that NBA champion Isiah Thomas is now the CEO of this cannabis company. The same site also talks about a snack manufacturer that’s growing at 30% annually. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Hedge fund sentiment towards Tesla reached its all time high at the end of 2019 and Tesla shares more than tripled this year. We are trying to identify other EV revolution winners, so if you have any good ideas send us an email. With all of this in mind let’s go over the latest hedge fund action surrounding ICICI Bank Limited (NYSE:IBN).

Hedge fund activity in ICICI Bank Limited (NYSE:IBN)

Heading into the second quarter of 2020, a total of 24 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -17% from one quarter earlier. By comparison, 26 hedge funds held shares or bullish call options in IBN a year ago. With the smart money’s positions undergoing their usual ebb and flow, there exists an “upper tier” of noteworthy hedge fund managers who were boosting their stakes considerably (or already accumulated large positions).

Is IBN A Good Stock To Buy?

Among these funds, Driehaus Capital held the most valuable stake in ICICI Bank Limited (NYSE:IBN), which was worth $67.7 million at the end of the third quarter. On the second spot was Theleme Partners which amassed $50.2 million worth of shares. LMR Partners, Oaktree Capital Management, and Think Investments were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Dalton Investments allocated the biggest weight to ICICI Bank Limited (NYSE:IBN), around 13.03% of its 13F portfolio. Think Investments is also relatively very bullish on the stock, setting aside 11.94 percent of its 13F equity portfolio to IBN.

Judging by the fact that ICICI Bank Limited (NYSE:IBN) has faced declining sentiment from hedge fund managers, it’s easy to see that there were a few hedgies that elected to cut their positions entirely heading into Q4. Intriguingly, John Armitage’s Egerton Capital Limited said goodbye to the biggest position of the 750 funds watched by Insider Monkey, valued at about $213.1 million in stock. Robert Pohly’s fund, Samlyn Capital, also cut its stock, about $171.4 million worth. These bearish behaviors are intriguing to say the least, as total hedge fund interest dropped by 5 funds heading into Q4.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as ICICI Bank Limited (NYSE:IBN) but similarly valued. These stocks are Constellation Brands, Inc. (NYSE:STZ), Telefonaktiebolaget LM Ericsson (publ) (NASDAQ:ERIC), Lloyds Banking Group PLC (NYSE:LYG), and Consolidated Edison, Inc. (NYSE:ED). All of these stocks’ market caps match IBN’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
STZ 50 1504770 -2
ERIC 20 366624 2
LYG 9 37400 4
ED 25 844776 -1
Average 26 688393 0.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 26 hedge funds with bullish positions and the average amount invested in these stocks was $688 million. That figure was $379 million in IBN’s case. Constellation Brands, Inc. (NYSE:STZ) is the most popular stock in this table. On the other hand Lloyds Banking Group PLC (NYSE:LYG) is the least popular one with only 9 bullish hedge fund positions. ICICI Bank Limited (NYSE:IBN) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 12.3% in 2020 through June 30th and surpassed the market by 15.5 percentage points. Unfortunately IBN wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); IBN investors were disappointed as the stock returned 9.3% during the second quarter and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.

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Disclosure: None. This article was originally published at Insider Monkey.