Why mutual funds rushed to invest in Tata Technologies IPO?

The strong interest of mutual funds in the initial public offering (IPO) of Tata Technologies. The IPO saw significant participation from 17 domestic mutual fund houses, collectively investing Rs 355 crore in the anchor book through 39 different schemes. The anchor quota of the IPO raised a total of Rs 791 crore from 67 investors.

According to the article, mutual funds expressed bullish sentiments regarding the prospects of Tata Technologies in the near to medium term. Some key reasons for their positive outlook include:

Comfort Around the Promoter Group: The mutual funds found comfort in the promoter group of Tata Technologies, which is a part of the reputed Tata Group.

Valuations: The valuations of Tata Technologies at the current level were considered better than those of existing listed companies in the same space, such as KPIT Technologies, L&T Technology Services, and Tata Elxsi.

Opportunities in the Automotive Space: Tata Technologies operates in the traditional research and development (R&D) space, which Original Equipment Manufacturers (OEMs) may tend to outsource, especially in the context of the automotive industry undergoing a transition. The company is expected to have significant opportunities in this evolving landscape.

Engineering and R&D Growth: Tata Technologies operates in the engineering and research and development (R&D) space, which is among the fastest-growing segments in the IT sector. The outsourcing trend in this space is expected to remain strong.

Transition to Electric Vehicles: The article suggests that the company may benefit from the ongoing transition to electric vehicles, leading to increased investment in engineering and R&D.

The participation of mutual funds in the anchor round of Tata Technologies' IPO is highlighted as being among the highest in recent times. Various types of mutual funds, ranging from high-risk funds like SBI Technology Opportunities to low-risk funds like SBI Multi Asset Allocation Fund, participated in the anchor round. Additionally, sector-specific funds, including Aditya Birla Sun Life Transportation and Logistics and ICICI Prudential Innovation Fund, were part of the anchor round.

However, it's noted that Tata Mutual Fund, HDFC Mutual Fund, and UTI Mutual Fund did not participate in the anchor round. The article speculates that Tata Mutual Fund may have abstained from participating in the IPO of a sister firm for good governance, possibly to avoid any conflicts of interest.