Indian fund managers are again under pressure. Amid global turmoil and persistent fear of redemptions from domestic retail investors, fund houses are playing safe by increasing their cash holdings in equity schemes.
Though the overall cash level till July is not available, equity experts say cash holdings are on the rise. According to fund managers Business Standard spoke to, cash exposure in some cases could be as high as 10-12 per cent.
The Bombay Stock Exchange’s benchmark Sensex, since its earlier peak in November last year, has lost close to 20 per cent of its value till date. Top equity schemes show negative returns of as high as 25 per cent in the current calendar year.
Last year in September, when Indian markets rallied, fund managers chose to keep little cash and deployed a larger chunk of funds. The current cash holding among industry players is piling up again. Fund tracker Value Research says a majority of the top fund houses increased their cash levels during the quarter ended June 30, compared with September last year.
Dhruva Raj Chatterji, senior research analyst at Morningstar India, says, "During times of crisis, mutual fund players tend to increase their cash exposure to protect further downside movement and to meet redemption pressure." Agrees Kaushik Dani, equity head at Peerless Mutual Fund. "Markets are volatile and it is prudent to be in cash than deploy it fully."
In July, the fund industry witnessed a net outflow of Rs 729 crore from its pure equity schemes, second highest in the current financial year. With this, overall fund flows have once again shifted into the negative zone, with a net outflow of Rs 239 crore.
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Chief investment officers (CIOs) see huge volatility in equities and admit the direction of the markets is uncertain. "In such a situation, you do not want to get caught and it makes sense not to deploy cash," says an industry's CIO of a mid-sized fund house, who wished not to be named.
According to N Sethuram, CIO at Daiwa Mutual Fund, "These are uncertain times across the globe and we prefer to be on the defensive side. Sectors not related with global events and not rate-sensitive, such as FMCG (fast moving consumer goods) and health care are a better play."
| TOP 10 FUND HOUSES (Based on AAUM as on June 30, 2011) | |||||||
| AMC | September 30, 2011 | June 30, 2011 | |||||
| AAUM (Rs Cr) | Cash (Rs Cr) | Cash (%) | Equity AUM (Rs Cr) | Cash (Rs Cr) | Cash (%) | Equity AUM (Rs Cr) | |
| Reliance MF | 1,02,049.43 | 1,329.55 | 3.51 | 37,859.12 | 1,410.16 | 4.42 | 31,913.00 |
| HDFC MF | 92,032.91 | 613.55 | 2.16 | 28,470.60 | 1,087.89 | 3.50 | 31,105.60 |
| ICICI Prudential MF | 79,856.82 | 1,829.84 | 13.03 | 14,042.42 | 1,392.01 | 9.52 | 14,626.34 |
| UTI MF | 69,105.09 | 673.44 | 3.64 | 18,493.09 | 869.62 | 4.57 | 19,030.28 |
| Birla Sun Life MF | 67,509.57 | 340.60 | 2.93 | 11,605.79 | 726.55 | 6.80 | 10,689.46 |
| SBI MF | 47,874.46 | 514.10 | 2.73 | 18,857.42 | 984.56 | 6.30 | 15,635.26 |
| Franklin Templeton MF | 36,539.44 | 801.52 | 5.45 | 14,712.08 | 997.85 | 7.21 | 13,837.85 |
| Kotak Mahindra MF | 34,167.04 | 70.11 | 1.64 | 4270.58 | 57.87 | 1.71 | 3,376.02 |
| DSP BlackRock MF | 30,021.93 | 466.15 | 3.26 | 14,310.69 | 555.16 | 4.14 | 13,410.70 |
| IDFC MF | 28,578.98 | 59.65 | 1.34 | 4454.78 | 328.4 | 6.84 | 4,798.70 |
| Source: Value Research | |||||||
Data released by the Association of Mutual Funds in India (Amfi) on Monday showed the assets under management (AUM) of equity schemes in July were 23 per cent of the industry's overall AUM. In June, it was 25 per cent and at the beginning of FY12, 29 per cent.