Social Network Analysis of Stock and Mutual Fund ties in the Indian market
Let us explore the world of mutual funds and their stock holdings through a novel approach. We use social network analysis methods to visualize the way stocks are related to mutual funds. We will analyse the network structure of stocks and their holding pattern in mutual funds. We will also examine the investment behavior of Indian mutual funds based on this analysis. We examined the stock holding pattern of the top twenty mutual funds in India with a CRISIL rank of 1 [(which means very good performance in the category (Top 10 percentile of the universe)]. The three year returns of the funds are in the range of 28.3% to 52.4%. The mutual funds fall in the following categories: Large Cap, Small & Mid Cap, Diversified Equity, Thematic - Infrastructure and ELSS. The table below gives the break-up of mutual funds across investment categories.
|
LARGE CAP |
Fidelity Equity Fund (G) Franklin India Bluechip (G) ICICI Pru Focused Bluechip Eqty (G) UTI Opportunities Fund (G) |
|
SMALL & MID CAP |
Birla Sun Life MNC Fund (G) HDFC MidCap Opportunities (G) IDFC Premier Equity - A (G) SBI Magnum Emerging Busi (G) |
|
DIVERSIFIED EQUITY |
Birla SL India GenNext (G) Can Robeco Equity Divers (G) ING Dividend Yield (G) UTI Dividend Yield Fund (G) UTI Equity Fund (G) UTI India Lifestyle Fund(G) UTI MNC Fund (G) |
|
THEMATIC - INFRASTRUCTURE |
Can Robeco Infrastructure (G) Franklin Build India Fund (G) |
|
ELSS |
Axis Long Term Equity Fund (G) Can Robeco Eqty TaxSaver (G) Franklin India Tax Shield (G) |
The data analysis and network graphs were created using Gephi. The graphs are given below. The first graph captures all the nodes and edges of the network. The second network graph captures details of the nodes with high Eigenvector centrality and high degree centrality.
The network graphs and the analysis reveal a network structure that has strong hubs depicted in high degree of clustering. The table below lists the top ten stocks held by the mutual funds listed according to their Eigenvector and degree centrality measures.
|
Stock |
Eigenvector Centrality |
Degree Centrality |
|
Infosys |
1.00 |
11.00 |
|
Reliance |
1.00 |
11.00 |
|
ITC |
1.00 |
11.00 |
|
ICICIBank |
1.00 |
11.00 |
|
HDFCBank |
0.82 |
9.00 |
|
TCS |
0.73 |
8.00 |
|
HDFC |
0.73 |
8.00 |
|
SBI |
0.64 |
7.00 |
|
BhartiAirtel |
0.55 |
6.00 |
|
KotakMahindra |
0.45 |
5.00 |
Preliminary results show that institutional investors investing in Indian market have large exposures to a few blue-chip stocks. This suggest the presence of Bandwagon effect (Leibenstein 1950), Peer influence (Duncan, Haller and Portes 1968; Manski 1993, 2000), Conformity (Bernheim 1994) and Contagion (Van den Bulte and Lilien 2001; Iyengar, Van den Bulte and Valente 2008) in the investment behavior of institutional investors. Normally one would associate this behavior at the level of individual investors. The institutional investors also depict a low risk investment behavior as exhibited in their large exposure to blue-chips stocks including Infosys, Reliance, ITC, ICICI Bank, HDFC Bank, TCS, HDFC and SBI.
