Fund managers up cash levels as mkts soar; MFs book profits in autos, PSBs

Cash holding rises from 5% to 5.6% in April

Markets nearing a new lifetime high are calling for some caution. At least, that is how domestic money managers feel, if rising cash levels is any indication.

The average cash holdings with the top 20 fund houses rose to 5.6 per cent at the end of April, from 5 per cent at the end of March, reveals a Motilal Oswal Financial Services report.

The increase in dry powder comes on the back of selling of Rs 5,100 crore in April amid broad-based rally in the markets.

From this year’s low, the S&P BSE Sensex and the National Stock Exchange (NSE) Nifty have rallied more than 8 per cent each. The sharp gains have once again pushed the one-year forward valuations for these two indices above their historical average.

Analysts say the valuations may look more expensive as there is a downward risk to earnings growth projection due to global uncertainty.

Industry players say that rising cash levels signals some degree of nervousness. However, as equity mutual funds (MFs) are not allowed to sit on a pile of cash, they are rotating their bets.

The list of most-sold stocks by MFs indicates that fund managers booked profits in red-hot stocks in outperforming sectors like automotive and banking.

A report by Fisdom Research shows a 4-6 per cent decline in the number of shares held by MFs in companies like Eicher Motors, Hero MotoCorp, and Bajaj Auto.

Except for Hero MotoCorp, all automotive stocks have recorded over 20 per cent run-up in stock prices in the past year. The NSE Nifty Auto Index, which gauges the performance of automotive manufacturing and ancillary industries, has surged 30 per cent in the one year and 10 per cent in calendar year 2023.

The paring of stake in select automotive stocks comes after MFs invested an average of Rs 6,500 crore in automotive stocks in the past six quarters.

Brokerages have maintained a positive outlook on most automotive stocks after decent results in the 2022-23 (FY23) fourth quarter (Q4), with some companies like Tata Motors managing to beat estimates. However, the two-wheeler segment continues to see weakness.

In Q4FY23, while domestic two-wheeler sales declined 7 per cent on-quarter, exports declined 17 per cent, according to an HDFC Securities report.

This has led to some brokerages taking a bearish stance on Bajaj Auto and Hero MotoCorp.

“The domestic motorcycle industry continues to see demand weakness and Bajaj Auto’s management is now guiding for 6-8 per cent volume growth over the next few quarters for the industry. Also, we believe that once volumes revive, even the current favourable mix will normalise. This, coupled with the slight underrecovery of recent cost inflation, is likely to keep margins under pressure from here on out. At 17.6x 2024-25E, the stock appears expensive,” said HDFC Securities.

The other sector to predominantly feature in the most-sold stocks list was public sector banks (PSBs). The Fisdom report shows an 8-5 per cent month-on-month decline in the number of shares held by MFs in Bank of India, Central Bank of India, Indian Overseas Bank, and UCO Bank.

MFs have been paring their holdings in PSBs for the last few months after a major rally in their stock prices in the last year or so. The PSB pack was the best-performing sectoral index in FY23, gaining 36 per cent, even as the benchmark Sensex gained barely a per cent.

According to an ICICI Securities report, domestic MFs were net-sellers of PSB stocks for the first time in the nine quarters in Q4, as they offloaded shares worth Rs 1,800 crore.