Fundmen sat on idle cash as markets scaled new highs

Fund managers have remained largely defensive in July, despite equity funds witnessing a large inflow of Rs 2,250 crore. On the back of inflows, cash levels went up to Rs 4,210 crore constituting 8.2 per cent of the total industry corpus, against Rs 3,370 crore or 7.1 per cent in June.

This was the result of fund managers remaining defensive as the market hit its all-time high, according to a recent Merrill Lynch report on domestic mutual fund industry.

However, the cash level is still lower than the peak hit in April, when cash flow to funds at Rs 4,300 crore accounted for 10 per cent of the corpus.

Fund managers cut their exposure to software sector as valuation were no longer appealing, despite making purchase worth over Rs 400 crore during the month. They also sold oil stocks including ONGC. The only exception was Reliance Industries (RIL), where they made significant purchases, the report said.

"There was a sharp drop in the percentage of allocation to Infosys,TCS and Satyam Computer during the month, as valuations appeared stretched. TCS dropped from sixth position to the 18th position as a result of huge profit booking, while Satyam exited the list of top-20 holdings of the domestic mutual funds," the report added.

Funds sold Rs 171 crore worth of TCS shares and Rs 133.6 crore of Infosys shares during the month. ONGC was next with Rs 97.4 crore, followed by Tata Steel (Rs 60.2 crore) and Tata Tea (Rs 51 crore).

On the other hand, there was a steep increase in allocation to RIL by the funds following the settlement between Ambani brothers. Mutual funds' holding in the company rose from 2.80 per cent in June to 3.66 per cent in July. Net purchases in the stock was worth Rs 90.9 crore.

However, buying interest was at the peak for Ranbaxy where funds invested Rs 93.9 crore. Other significant purchases were JSW Steel (Rs 90.1 crore), Syndicate Bank (Rs 87.2 crore) and Grasim (Rs 58 crore).

Jaiprakash Industries was a new entrant into the top-20 holdings of mutual funds as fund managers sought value among engineering and construction stocks.

Most fund categories outperformed the Sensex with only exception being tech funds and monthly income plans.