Fund managers grab opportunity to pick high-valued stocks cheap.
Indian fund managers are in no mood to lose the opportunity of getting into the equity markets at current levels. Picking valuable stocks is a good proposition and managers do not mind buying even if their available cash exhausts.
The level of haste among fund managers to buy equities can be gauged from the fact that monthly net investment by mutual fund houses in August hit a 38-month high, at Rs 2,524 crore, according to the statistics available from the Securities and Exchange Board of India (Sebi). Such an aggressive buying by mutual funds was last seen in June 2008, when managers pumped in Rs 3,179 crore.
Expectations among fund managers that Indian markets could see a rebound soon has made mutual fund houses jump into buying stocks. According to them, there has been enough correction and it's an opportune time to build good portfolios for their investors.
Global cues, led by weak economic data from the US and mounting credit worries within the euro zone, continued to take a toll on the domestic markets in August. The Bombay Stock Exchange benchmark Sensex fell 8.4 per cent during the month, while the BSE Mid-cap and Small-cap indices lost 9.3 per cent and 14.1 per cent of their values, respectively.
Daiwa Asset Management (India) Chief Investment Officer N Sethuram believes markets have had enough correction. "This is an opportune time to pick good valuable stocks," he adds. Fund houses had taken a cash call amid global uncertainties which led to higher cash holdings. For instance, at the end of the June quarter, the top 10 fund houses were sitting on considerable cash. In some cases, it was as high as 10 per cent, against the normal holding of 3-5 per cent.
Fund managers say it may not be prudent to take pure sectoral calls that are likely to go wrong. For instance, a fund manager explains, Reliance Industries is at a very reasonable level in the oil & gas space. Similarly, Maruti Suzuki is one of the top bets in automobiles along with Hero MotoCorp - the rate-sensitive sector. Barring a few stocks, others have drastically fallen and re-rating has happened, say fund managers.
In their correspondence with Business Standard during the month, fund managers had termed the global economic turmoil a tsunami. Gopal Agrawal of Mirae Asset Global Investments (India) had said: "We have to find value in a falling market. One cannot go defensive at such low levels, as several high-valued stocks have fallen and it makes sense to get into them with a long-term perspective."
According to a report by fund tracker MorningStar India, in August, domestic equity funds delivered the worst monthly return since January. "Banking and technology funds were laggard, with these categories falling more than 12 per cent during the month," says the report. However, despite a sharp fall in returns in the month, not many equity funds underperformed their category benchmark indices.
Though equities failed to perform, it was gold ETFs that glittered in August. According to MorningStar, the category delivered the highest-ever monthly return, an average 15.2 per cent, in the month. The precious metal continued to rally and touched a historic high of $1,911 in the later part of the month.
