MFs mop up Rs 1400 cr in market crash

The 800-point dip in the Bombay Stock Exchange (BSE) Sensex early this week turned out to be a 'flight to safety' for the mutual fund industry.

Led by a leading asset management company (AMC), the mutual funds (MFs) garnered nearly Rs 1,400 crore by reducing their equity exposure.

Fund houses sold off banking stocks heavily. As per the data available with the Securities and Exchange Board of India (Sebi), between Monday and Wednesday, the funds were net sellers of equities worth Rs 1,439.17 crore, purchasing stocks worth Rs 1,751.48 crore and selling Rs 3,103.04 crore worth of stocks in the three days.

"The mutual funds movement in the first three to four days of the week was influenced by the selling by a specific fund house, which ended its new fund offer for an equity fund a few days ago. There was not much redemption pressure on other funds," an industry source said.

Earlier, analysts had expected that fund houses would buy stocks after the fall, which was said to be a result of stiff valuations in the market.

Recently, four to six closed-ended funds of top mutual fund houses had collected more than Rs 3,500 crore through equity-oriented as well as tax-saver schemes.

However, contrary to their perception of funds buying in the declining market, the Sebi figures show that they preferred shedding the unattractive or volatile investments and generated cash.

"This has been a flight to safety for the mutual funds. With the ongoing bull run at the markets, the funds had deployed nearly 95 to 97 per cent of their equity corpus into the markets. Normally, during market corrections, buying activity contracts, as there are less sellers in the market. The funds sold at this period to swell their cash balances, which will help them in future investments," said Sameer Kamdar, national head (mutual funds) of Mata Securities.

The Sensex, which saw a sharp fall of nearly 800 points on the first two days of the week, rebounded with a 180-point gain on Wednesday, while the index continued its northward run the next day too, surging by 300 points.

The 30-share index rose by another 127.36 points on Friday to end the week at 13,614.52 points. The index is now only 180 points behind the last week's close of 13,799.49 points.

"The banking equities lost nearly 6 to 6.5 per cent during the fall. However, with the rebounce of the market, they have recovered nearly 5 per cent. There has been redemption pressure this week. But, we observe that the pressure is more on the old funds than on the recently launched funds," said Subhash Bagaria, research associate with Angel Broking.

The mutual funds industry, with a total of more than Rs 3 trillion worth assets under management (AUM), is expected to see more than 30 NFOs in the next few months. The AUM of equity schemes is currently around Rs 1 trillion.