Uncertainty in global financial markets and its repercussions on India have made domestic fund managers go cautious on Indian equities, forcing them to sell shares and hoard cash in equity funds.
The domestic mutual fund industry sold a total of Rs 372.6 crore of shares in November compared with net investments of Rs 1,431.6 crore in October, according to data released by the Securities and Exchange Board of India (Sebi).
The reason, according to these funds, is to enhance cash levels and be ready to go for bottom fishing when market corrects further.
On the debt side, some domestic mutual funds continued to offload bonds as reflected in net sales of Rs 3,598.5 crore during November, but down from net sales of Rs 26,082 crore a month ago.
Normally, mutual funds maintain 4-5 per cent cash levels to honour redemption commitments.
But increasing uncertainty in equity market and views of further correction have made a few mutual fund managers increase cash levels to as high as over 35 per cent.
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“I think it (high cash levels) is more due to cautious view on equities. We are holding 15 per cent cash levels in our equity plans. We really do not expect sharp recovery in market,” said Prateek Agrawal, vice-president & head-equity, Bharti AXA Mutual Fund.
“There would be a phase of consolidation before the market recovers. Market would consolidate for a reasonably long time. We still have to see consolidation happening. It is difficult to put a number (on index levels),” said Agrawal.
In November, the Bombay Stock Exchange’s Sensex and National Stock Exchange’s Nifty shed 7.10 per cent and 4.52 per cent respectively.
Another reason for sitting on huge chunk of cash levels is to protect net asset value of equity plans, which have been wiped out by almost 30-70 per cent over the past one year.
“Fund managers are piling up cash than holding stocks because they fear market would hit further rock bottom, and they want to avoid further fall in NAV. Also, to buy at downside, they need to have cash,” said Y Jawahar, vice-president and distribution head of Mata Securities.
Banking, capital goods, fast-moving consumer goods, telecom, and other infrastructure-oriented companies would be most favoured investment avenues for fund managers, who are waiting for market to consolidate.