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Cash levels at equity mutual funds (MFs) saw a drop in March, when the country’s benchmark indices posted their worst monthly performance in nearly two years.
The total cash holdings at MFs accounted for 2.5 per cent of equity assets under management (AUM) at the end of last month. This was a 170 basis point reduction compared to a cash holding of 4.2 per cent at the end of February, the data show.
The decline in cash levels indicates fund managers were nibbling amid stocks entering a correction (fall) phase. The country’s benchmark indices saw a sharp five per cent fall in March, while that in the broader indices was even sharper.
“The correction in March provided a good buying opportunity. This led to reduction in cash levels. The sector can't afford to sit on cash for long at a time when, fundamentally, things are bullish. It's a ‘buy on dip’ market, not a ‘sell on high’ market,” said Akshay Gupta, group executive head, Indiabulls AMC.
On an absolute basis, cash holdings have come from around Rs 12,000 crore during the start of the year, when the market touched its all-time high, to Rs 8,400 crore at end-March.
Some fund managers said they’d decided to move to cash in the run-up to the Union Budget. “Sitting on cash was a tactical call as the Budget was approaching. Post that, there were opportunities across the sector and we chose to buy. Investor inflows in equity schemes continue to remain robust,” said a chief investment officer (CIO) with a leading asset management company (AMC).
An analysis of cash holdings of top fund houses also indicate most of the leading entities saw their cash levels dip between January and March. The country’s biggest fund house, HDFC MF, which manages equity assets worth Rs 55,000 crore, saw its cash holding drop from 1.57 per cent (Rs 898 crore) in January to a mere 0.59 per cent (Rs 327 crore) in March.
The total cash holdings at MFs accounted for 2.5 per cent of equity assets under management (AUM) at the end of last month. This was a 170 basis point reduction compared to a cash holding of 4.2 per cent at the end of February, the data show.
The decline in cash levels indicates fund managers were nibbling amid stocks entering a correction (fall) phase. The country’s benchmark indices saw a sharp five per cent fall in March, while that in the broader indices was even sharper.
“The correction in March provided a good buying opportunity. This led to reduction in cash levels. The sector can't afford to sit on cash for long at a time when, fundamentally, things are bullish. It's a ‘buy on dip’ market, not a ‘sell on high’ market,” said Akshay Gupta, group executive head, Indiabulls AMC.
On an absolute basis, cash holdings have come from around Rs 12,000 crore during the start of the year, when the market touched its all-time high, to Rs 8,400 crore at end-March.
Some fund managers said they’d decided to move to cash in the run-up to the Union Budget. “Sitting on cash was a tactical call as the Budget was approaching. Post that, there were opportunities across the sector and we chose to buy. Investor inflows in equity schemes continue to remain robust,” said a chief investment officer (CIO) with a leading asset management company (AMC).
An analysis of cash holdings of top fund houses also indicate most of the leading entities saw their cash levels dip between January and March. The country’s biggest fund house, HDFC MF, which manages equity assets worth Rs 55,000 crore, saw its cash holding drop from 1.57 per cent (Rs 898 crore) in January to a mere 0.59 per cent (Rs 327 crore) in March.
Similarly, Reliance MF, with Rs 44,400 crore of equity assets, reduced cash levels to 1.32 per cent (Rs 585 crore) from 3.28 per cent (Rs 1,444 crore) for the period. ICICI Prudential MF cut cash holdings from as high as 6.7 per cent to 3.4 per cent.
Despite valuations looking heady, given the poor earnings forecasts and other uncertainties, most fund managers are betting that the market will perform well over the next two to three years.
S Naren, CIO, ICICI Prudential MF, says: “We continue to believe India is the best place to invest from a three-year perspective. Though in the mid-term (two quarters) there could be challenges, things are looking up.”
In 2014-15, net investment by fund managers in stocks was Rs 40,087 crore, almost equal to what they put in between 2003-04 and 2007-08. The total of net inflows from investors in equity schemes (including equity-linked savings schemes) was Rs 71,000 crore as the key indices gained 25 per cent.
Prashant Jain, CIO of HDFC MF, says: “A popular observation about the markets is that they have run up nearly 25 per cent in the past one year. A more pertinent observation is that the markets are up only around 30 per cent from the pre-Lehman (crash) levels over the past six years.”
