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Equity funds to deploy cash back into market

Equity funds to deploy cash back into market

Mumbai: A majority of India’s equity fund managers plan to trim cash exposure and buy large-cap stocks, mainly in the engineering and financial services sectors, in the next three months, a Reuters poll showed.

Not one of the 11 fund houses that took part in the Reuters asset allocation poll from 20-23 August expressed any intention of increasing their allocation to cash.

“Markets have corrected, so it could be better time to invest than it was before," Mugunthan Siva, chief investment officer of OptiMix division of ING Investment Management (India), said.

As of 23 August, the Bombay Stock Exchange’s (BSE) benchmark sensitive index, or Sensex, has fallen 10.33% from a record closing high of 15,794.92 points it hit on 24 July. However, not one of the respondents felt it could fall more than 10% in the next three months.

“In the short term it might fall a bit more, but in the long term, it’s a good entry point," Siva said, adding it was a good time to start deploying cash back into the stock market.

Equity funds kept an average 8.6% of their assets as cash in July. Nearly 73% of the respondents said they would now move to equities and invest mainly in large-cap stocks. “In an environment which is volatile, they are favouring stocks with higher liquidity," Siva said.

Diversified equity funds invested an average 57.9% of the assets in large-cap stocks.

The poll showed nearly 73% of the respondents planned to raise it and cut mid-cap holdings.

Nearly three-fourths of the respondents were planning to buy more into popular engineering and financial services sectors in the next three months, the poll showed.

Equity fund managers, who invested an average 16.7% of the assets into engineering stocks in July, said the capex cycle remained robust and they expected the sector to outperform over the next two-three years.

“Engineering companies have visibility for the next two-three years in terms of order books and projects being undertaken," Sanjay Dongre, fund manager at UTI Asset Management Co. Pvt. Ltd, said. “They should be able to do pretty well." Many such stocks have also corrected in the last one month and offered a buying opportunity.

Fund managers said they also liked public sector banks that looked attractive on the valuation front as compared with private sector ones.

The battered auto stocks and out of favour metal scrips and those in the energy sector are also likely to attract investments, the poll showed.

Auto stocks have been “a stifled sector, so people are starting to nibble at it", Siva said. “Autos are looking cheap."

The BSE Auto index had fallen 19.1% as on 23 August this year, prompting equity funds to cut exposure to 5.4% in July from 8.2% in January. The poll showed nearly 36% of respondents planned to raise exposure.

Balanced funds, which held 14.5% of assets in cash at the end of July, plan to raise their equity as well as debt allocation over the next three months. Debt funds also plan to cut cash levels and invest in bonds, it showed.

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