MFs stay on hunt amid meltdown

Buy Rs 6164 cr shares as mkt dips 17%.

Although shares seem attractive at current levels, fund managers are likely to be cautious as they are expecting another downward correction in the near term.

However, during May 10-22, when the market crashed 17 per cent, they invested heavily as seen from cash levels of 5-10 per cent in their equity funds.

The stock market crashed around 17-18 per cent during May 10-22. Sensex fell 17 per cent from its closing high of 12612.38 on May 10 to 10481.77 on May 22. During the period, Nifty shed 18 per cent to close at 3081.35.

The meltdown was led by weak global markets, fall in prices on London Metal Exchange, and fears of foreign funds pulling out from Indian markets due to rise in US interest rates. On May 22, trading on both BSE and NSE was suspended due to 10 per cent intra-day crash.

However, since May 12, mutual funds have been continuously investing in the market. During May 12-22, domestic mutual funds net bought shares worth Rs 6164 crore.

Their highest net buying, worth Rs 1162 crore was on May 24. May, domestic funds bought equities worth Rs 7306 crore. On the other hand, foreign funds offloaded Indian equities of Rs 7407 crore.

Utilising the heavy correction, the country's largest fund house, UTI Mutual last week, invested Rs 900 crore in stocks across sectors, including automobile, cement, information technology, and power.

HSBC Mutual's chief executive, Sanjay Prakash, said their equity funds are fully invested. A Prudential ICICI Mutual official said, "We also invested in the markets when it crashed and have cash to the extent of 8-9 per cent now."

Vinay Kulkarni, senior fund manager-Indian equities at DWS Mutual, said, "Yes, investment can be done in the current market situation. The crash is due to global factors due to their high interest rate. Indian economy is not co-related with the US economy. The Indian market is doing fine and has corrected significantly in last three weeks."

Although mutual funds say there will be worries over the short-term, they are confident of the long-term prospects of Indian economy, which is seen growing at 8 per cent in 2006-07 (April-March).

Swati Kulkarni, fund manager at UTI Mutual, believes fundamentals of Indian economy remain positive.

She said, "This (today's intra-day 6 per cent fall) is a global event and has nothing to do with the Indian economy. Market is attractive at current levels".

Anand Shah, fund manager at Kotak Mahindra Mutual, expects Sensex to go below 10,000 in the short-term as foreign fund flows seem bearish.

Shah said, "Markets will remain volatile. Valuations are back to attractive levels. There are only technical factors to watch for now. Negative views on foreign funds flows will keep the market volatile."

Shah of Kotak Mutual, which holds 10-11 per cent of its equity fund assets in cash, said, "We will invest (when Sensex goes) below 10,000 levels. We are not in a hurry to invest and will go gradually."

Paras Adenwala, head-equities at ING Vysya Mutual, said, "Yes, we will make investment, but sentiment is weak now, so we have to carefully make investment.

Any sector that is profitable will be selected for making investment."

On investment avenues, Kulkarni said, "Investment can be done in large cap, which are well researched stocks and offers significant growth."