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Eager funds look at bottom-fishing

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Newswire18 Mumbai
Amid lingering credit worries and falling equity markets, the fund industry feels time is ripe for investment into stocks, but there should be gradual deployment of money, as the market may see a further correction.
 
Mutual funds holding higher than normal cash are likely to invest in stocks that are fundamentally strong and have taken a major dip in the recent correction, officials said.
 
The equity market has been witnessing strong correction as credit worries arising from the US subprime mortgage market continue to haunt.
 
On Friday, the Bombay Stock Exchange's Sensex closed at 14141.52, down 216.69 points or 1.51 per cent, while National Stock Exchange's Nifty ended at 4108.05, down 70.55 points or 1.69 per cent.
 
Sensex and Nifty witnessed a fall of 859.39 and 262.15 points respectively in the past two days. Thursday's fall of over 4 per cent led to the key indices closing at their lowest levels in nearly two months.
 
Sensex has fallen 10.47 per cent since July 24, when it hit a peak of 15794.92, while Nifty, which peaked at 4610.15 the same day, has dropped 11.10 per cent.
 
The US Federal Reserve Friday cut the rate on its primary credit discount window facility by 50 basis points to 5.75 per cent. This move could bring about some calm to the market for a short term.
 
Jayesh Shroff, fund manager, SBI Mutual Fund, said, "This (cut in the discount rate) will only help in the short term. It is a temporary measure and was expected. This is a step in the right direction."
 
Fund officials consider this to be a good time to begin picking up stocks, but advocate gradual deployment.
 
Ajay Bagga, chief executive officer, Lotus India Mutual Fund, said, "We are not in a hurry. We will invest money gradually over the next three months."
 
Lotus India Growth Fund, the last equity scheme from the fund house that closed for subscription, raised Rs 2.5 billion in its new fund offer July 9-19.
 
Bagga said the money raised by the scheme is yet to be deployed.
 
Soumendra Nath Lahiri, senior vice president and fund manager, DSP Merrill Lynch Mutual Fund, said "We are still maintaining 8-10 per cent cash and our strategy hereon is very stock-specific. It is difficult to say if there would be further correction but we are constantly buying and selling and are not looking to increase our cash levels."
 
Sandip Sabharwal, chief investment officer, JM Financial Mutual, on the other hand expressed his faith in the market saying, "We are buying. We are immediately deploying the NFO money that we mopped up, as we do not see any further slide. Our cash levels are between 8 and 10 per cent."
 
JM Financial Mutual launched JM Contra Fund, an open-ended equity scheme on July 16. Subscriptions to the scheme closed on Aug 14. Sabharwal refused to disclose the mopped up amount.
 
Nilesh Shah, chief investment officer, ICICI Prudential Mutual Fund said, "We still expect a little more correction but we will continue deploying."
 
A fund official at a private mutual fund said, "I see 5-10 per cent further correction in the market."
 
Not too keen on deploying money at this stage, Prateek Agrawal, vice-president and equity head, ABN AMRO Mutual Fund, said, "Usually we are fully invested but we are now sitting on 5-15% cash levels. We are keeping an eye on the currency market, which has become very volatile. Stability of currency market would bring about stability in equities as well."
 
He said, "We are not deploying fresh money but when it is time to nibble, we will look at the stocks that are fundamentally strong and have fallen maximum without any reason."
 
Information technology and capital goods are sectors most fund houses seem upbeat on.
 
While the strengthening of the dollar has brought some positive sentiment in the technology sector, valuations in the capital goods sector look attractive, according to officials.
 
R K Gupta, managing director and fund manager, Taurus Mutual Fund, said, "Capital goods stocks have witnessed large selling in the meltdown and picking up good stocks at low levels makes sense."
 
Gupta added real estate and automobile are sectors to be wary of, keeping in mind the rising interest rate scenario.
 
ICICI Prudential Mutual's Shah said the fund house is bullish on sectors like telecom, pharmaceuticals, banking and financial services.
 
So far, in August, mutual funds have net invested 2.39 billion rupees in shares. In July, funds net sold 10.87 billion rupees of shares.

 
 

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First Published: Aug 20 2007 | 12:00 AM IST

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