Heavy redemptions have taken a toll on mutual funds’ activity in the market. In spite of a stellar rise in equities this year, MFs have not been able to ride the wave and are instead selling stocks to meet redemption pressures.
These funds sold Rs 695.60 crore of shares in November and Rs 4,714 crore taken together during this calendar year. This is when FIIs have bought close to $4.8 billion or Rs 22,330 crore (according to provisional data on the Bombay Stock Exchange) during this calendar year.
“The industry has been seeing redemptions in equity funds and that would be the main reason behind MFs being net sellers. Although a section of people feel the market has gone slightly overboard, we feel it is fairly valued in line with historical averages. Also, as people expect volatility in the market, some of them would be holding cash to take advantage of that situation,” said Navneet Munot, Chief Investment Officer, SBI MF.
Investors pulled out Rs 1,109 crore from equity funds in November. Since August, the category has seen net outflows to the tune of Rs 5,130 crore. Fund houses have been selling in the market to meet these redemption pressures. And although there are a number of NFOs (New Fund Offers) being launched, the mobilisation from new schemes has been poor, mostly in the range of Rs 200-500 crore.
A number of fund managers also feel the market is overvalued and it does not make sense to enter at these valuations. “We feel the market is trading in a premium valuation range and a correction is inevitable. We would rather wait and watch for some sanity to emerge, before we go and buy a particular stock. However, there are some pockets where there is still some upside left. We have taken a cash call in some of our schemes and would deploy it at a suitable time,” said a manager at a foreign MF.
Some of the largest fund houses such as ICICI Prudential and Reliance MF are sitting on 10.19 per cent and 11.39 per cent cash. Canara Robeco MF has 13.33 per cent of its total assets as cash. IDFC MF is holding 13.08 per cent of its total assets as cash, according to Value Research Online.
