MFs delay investments till final results

The recent fall in share prices can be an opportunity for investors to buy stocks at a cheaper level. But, same may not be true for the mutual fund industry.

Despite sitting over good cash levels, fund houses are maintaining a "cautious" approach, postponing their big investments till the final quarter results from the India Inc is out.

Analysts said MFs are not active in picking up stocks at present levels, as the cash accumulated by them in the last month is may be used for paying the dividends, than for stock buying.

This month, the funds have been net sellers of equities, unlike the May 2006 meltdown, where they used the decline in stock values to invest heavily in attractive stocks. 
 

MF INVESTMENT
Name of the fund	Cash level of the fund	Dividend
Sundaram BNP Paribas Tax Saver	24	20
SBI Magnum Global	28	50
Birla Index Fund	44	65
Tata Growth Fund	11	100
Canequity Taxsaver Fund	21	60
Note: Cash level at end of February, figures in per cent Source : Sharekhan

The MFs have bought equities worth Rs 6,262.93 crore and sold Rs 7,364.51 crore, becoming net sellers to the tune of Rs 1,101.58 crore during this month.

The scene was totally reverse during the May 2006 meltdown, when the funds were active buyers of equities, investing Rs 18,345 crore in equities, while selling Rs 10,452 crore worth stocks, putting the net buying at Rs 7,893 crore. This was the biggest single-month equity exposure by the MFs during this financial year.

In the beginning of the month, the top equity diversified schemes such as SBI Magnum Global, Reliance Long Term Equity and Prudential ICICI's Derivative and Equities funds were holding handsome cash levels to the extent of 25-30 per cent. Some of the equity had also raised their cash levels up to 50 per cent.

Many schemes have announced dividends. SBI's Magnum Global recently declared 50 per cent dividend, while Tata MF announced 100 per cent dividend for its growth fund "" payment for which the cash is likely to be used. Besides, many others have declared dividends ranging from 50 to 500 per cent.

"Following the May meltdown, the funds made huge equity investments, as many new fund offers hit the markets a month prior to it. So, the funds had good cash to deploy, and they had a nice opportunity to enter market at lower levels as the meltdown took place," Subhash Bagaria, MF analyst with Angel Broking said.

However, he saw the ongoing restricted fund activity to remain till the end of the month, considering that the fund managers' could wait for the announcement of corporate earnings for the quarter ending March 31 to make stock selections.

R Rajagopal, equity head of the DBS Cholamandalam Mutual Fund, had a different view on this issue. He said his fund house was maintaining 5-7 per cent cash level and expects the market to gain pace soon.

"We chose to stay invested in markets, despite selling largely from foreign investors and a few MFs. The cash levels have gone up since beginning of the month. We are keen on telecom, banking and oil and gas sectors to perform well in coming financial," he said.