Mutual funds assets seen below Rs5 trillion

Mutual funds assets seen below Rs5 trillion

Mumbai: Indian mutual funds registered their sharpest monthly fall in assets in at least a year, dragged by the stock market meltdown and heavy redemptions, according to October data released on Monday by industry body Association of Mutual Funds of India (Amfi).

The fund houses are headed towards what analysts say is an “inevitable" fall to below Rs5 trillion levels for the first time since September 2007. Average assets under management (AUM) of 21 out of the 38 fund houses in the country has dropped by about 19% to Rs2 trillion as on 31 October, from Rs2.46 trillion in the preceding month, Amfi data shows.

Also See Steep Fall (Graphic)

The fall was led by the country’s largest mutual fund Reliance Capital Asset Management Ltd, which saw its assets drop 17.8% to Rs71,093 crore as on 31 October.

Total assets under management for all the 38 fund houses declined to a 12-month low of Rs5.29 trillion in September, the latest month for which complete industry data is available.

Large fund houses such as ICICI Prudential Asset Management Co. Ltd, HDFC Asset Management Co. Ltd and UTI Asset Management Co. Ltd haven’t yet released their data for October.

This is the second consecutive monthly fall for mutual funds, after assets of the same 21 fund houses shrank by 2% in September.

Analysts Mint spoke to expect the trend to continue at least till November. “The outlook is bleak," said Dhirendra Kumar, chief executive of New Delhi-based mutual fund tracker Value Research India Pvt. Ltd. “Everyone’s still scared to get in." Still, Kumar said, the October drop seemed muted considering the heavy fall in the equity markets and redemptions in money market or liquid mutual funds, where banks and companies park their surplus money.

Today, finance minister P. Chidambaram will meet the chiefs of top five mutual funds, along with the chief executive officers of some large state-run banks.

Hemant Rastogi, chief executive of Wiseinvest Advisors, a wealth advisory, said average assets under management would slip below Rs5 trillion in October. As of September-end, about Rs2 trillion of the total Rs5.29 trillion AUM was in equity assets. Allowing for a minimum 15% fall in their marked-to-market values would wipe off Rs30,000 crore, explained Rastogi.

Marking to market is a procedure where the value of a financial instrument is corrected to reflect that of the underlying asset. Sensex, the country’s most tracked equity index, had fallen 23.89% in October to end the month at 9,788.06 points, as foreign institutional investors turned sellers. In October alone, foreign investors withdrew $3.53 billion from the Indian market.

“Liquidity being tight (in October) meant there were more redemptions than usual," said Rajan Krishnan, chief executive officer of Baroda Pioneer Asset Management Co. Ltd.

In the first two weeks of October, Rs30,000 crore was withdrawn from liquid or money market mutual funds as call rates shot up and banks refused to lend to each other and companies.

Overnight lending rates continued to spike throughout September to reach 17.5% on 1 October, following an estimated Rs40,000 crore outflow in September to advance tax payments. This led to mutual funds selling Rs26,081 crore of debt in October, according to data provided by capital markets regulator Securities and Exchange Board of India.

Since then, the Reserve Bank of India has unveiled several measures to infuse liquidity into the system including a cut in the policy rate and creation of a special window for mutual funds, which let banks withdraw money to meet the liquidity requirements.

Fund managers aren’t sure if these will help. “I don’t know whether liquidity has eased up" following the RBI measures, said Krishnan of Baroda Pioneer. “We will have to wait and see."