MUMBAI: The mutual fund industry, which has built up cash reserves of between 5% and 20% of assets, could be looking to deploy some of it back into equities as Sensex reaches a five-month low.
As of end-January, equity-oriented funds accounted for assets of Rs1.21 lakh crore. An average cash position of 10% would mean the industry has almost over Rs12,000 crore worth of cash available to invest. Reliance MF, one of India’s largest funds, had built up cash of between 15-20%, said its chief investment officer K. Rajagopal. UTI, another large Indian mutual fund, too has built up cash positions of 5% to 15% across its equity funds according to senior officials of the fund who requested anonymity.
Mutual funds have been selling shares as they wanted to prepare for potential redemptions from investors looking to cash out on recent highs. As a result, instead of the normal 3-4% cash position, several funds have sold equities to raise much higher cash.
Mutual funds have been net sellers of equity worth over Rs1,800 crore since January this year. In the first two days of March, mutual funds sold equity worth Rs237.69 crore, compared with Rs274.05 crore in all of February.
The impact of the higher cash positions by funds would mean that the net asset values would fall less than the drop in the stock markets.
Chetan Sehgal, director, research, India, Franklin Templeton Asset Management, feels that selective buying by funds will now begin. Nilesh Shah, chief investment officer of Prudential ICICI says, “Some mid-cap stocks have fallen by 30-40%. The BSE Sensex stocks are now available at a one-year forward price to earnings ratio of14.7 times as compared to 18 times at the highs that we recently saw.”