Funds go slow on equity buy

With stock markets more or less directionless in recent weeks, mutual fund houses continue to have cash levels of up to 20 per cent of their total corpus. Most of them have been sitting on the fence and going in for very selective buying of stocks.

Mutual funds were net sellers in the equity market to the tune of Rs 1,742 crore till March 28 "� the biggest single month sales since June 2006.

The fund houses are, however, buying into debt, a move that reflects their heavy cash position. During this month, the fund houses have invested Rs 4,235 crore in debt instruments, their biggest single month investment in debt since November 2006.

Industry executives said since last month, some of the top performing schemes have upped their cash levels to 50 per cent. Following the dividend distributions by several schemes, this level has come down to half, as cash garnered has been used to pay the share of profits to investors.

"Incidentally, there are no major new fund offers (NFOs) lined up and the ongoing offers have not received good response as a result. NFOs have extended the issue closure date. Besides, the concern over issues of hike in crude prices, appreciation of the rupee and high inflation continues. This could prove costly for the fund houses as most diversified equity schemes have good exposure to the information technology sector," Subhash Bagaria of Angel Broking, said.

Analysts also said the funds were not deploying the cash in buying equities as they could be anticipating more correction from the present levels. There is also a sentiment in the market that fund managers are specifically looking for those sectors, which have been hit badly, but their potential remain strong.

"Cement and construction have gone down to a good extent. A few FMCG scrips are also available at cheap levels. Following the recent issue over cement pricing, the markets responded and these scrips went down. But we believe the fundamental potential of these stocks is intact. We are looking forward to invest into these sectors," a fund manager belonging to a top mutual fund said.

In February, the MFs were net sellers of equities worth Rs 274 crore, as they sold stocks worth Rs 12,971 crore.