Involved in only 2% of such trades in last 3 years.
Mutual funds (MFs) in India are shying away from the wholesale model. They have shown limited participation when it comes to bulk deals. According to a research done by SMC Capital, fund houses have remained the least active institutional investors in the bulk deal segment.
Bulk deals involve buy/sell of more than 0.5 per cent of a company’s listed shares. Under block deals, a minimum of 5 lakh shares or a value of Rs 5 crore is executed through a single transaction. These are trading mechanisms which include buying and selling of large chunk of shares.
Industry observers say that mutual funds have much more diversified portfolio than foreign institutional investors (FIIs), so they do not buy through bulk deals. A lot of fund houses have been sitting on cash even during the market rally.
In spite of a 10 per cent cap on single-stock investment by mutual funds, they have not deployed it completely. Quite surprisingly, mutual funds form only 2 per cent of the total volume of bulk deals during the last three years.
Out of 92,237 deals, MFs have participated in only 1,448 of them.
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In terms of value too, they have hardly bought and sold shares through the bulk window. They have invested Rs 15,500 crore, which is only 3 per cent of the total bulk deal value amounting to Rs 500,500 crore.
Experts say that there could be various reasons behind it, the prominent being that domestic MFs have been short of cash from last year when the global financial crisis started.
The markets have plummeted from their peak levels resulting into negative performance for the funds. This has dissuaded investors as they lost confidence in equity funds. Inflows into equity funds virtually died last year and is still coming at a much slower pace.
“Mutual funds are probably one of the worst impacted as far as equity funds are concerned. Insurance companies are still getting the premium money. In case of FIIs, they have been selling in large chunks through bulk deals which increases the volume,” said a fund manager.
The bulk deal segment or buying and selling of shares in large chunks continues to be dominated by FIIs, promoters, HNIs and large insurance companies.
“Mutual funds receive incremental inflows and hence they tend to deploy it on a day-to-day basis, rather than buying in one lot,” said Saurabh Nanavati, CEO, Religare Mutual Fund.
“Most of the bulk and block deals are done in mid-cap scrips where there is low liquidity. Mid-cap stocks have gone out of favour since later part of the last year. Many fund houses are stuck with such scrips. So, one might not see mutual funds buying those stocks through bulk deals,” said another fund manager.
2009 has so far seen three bulk deals by mutual funds. Reliance Capital AMC invested Rs 139 crore in United Spirits and Rs 108 crore in Shriram Commercial Vehicle Finance.
In yet another bulk deal, HSBC invested Rs 15 crore in Max India.