The 626-point fall in the Sensex on Monday would have shaved off around Rs 7,000 crore, or roughly 4%, from the equity portfolios of all mutual funds combined, based on their holdings at the end of July.
A back of the envelope calculation on the basis of stock portfolio weightage (as per July AUMs) of mutual funds reveals that key players such as ICICI Pru MF, Reliance MF, DSP Blackrock, UTI MF, Birla Sunlife MF, SBI MF, HDFC MF and Sundaram MF would have shed their equity asset base by around 3.3-4.5% on Monday. According to sources, the mutual fund industry is currently holding Rs 20,000 crore of cash in their portfolios, with most fund houses maintaining 8-9% cash levels. Domestic institutional investors have bought shares worth close to Rs 3,000 crore since the beginning of this month.
“Institutional investors have begun cashing out of high beta stocks and moving into market defensives. Most fund managers have been increasing investment exposure to large-cap IT stocks, energy and pharma stocks over the past few days,” said Gopal Agarwal, equities head, Mirae Asset Global Investment.
As per the first quarter shareholding pattern of India Inc, domestic mutual funds were overweight in consumer staples, industrial utilities and telecom companies in their portfolios. Underweight positions in technology, financials and materials funded their market purchases in high-beta sectors. Towards end-July and the beginning of August, mutual funds tilted their portfolio to add financial services’ companies and defensives such as consumer goods and IT in their portfolios.
“The focus now is on stocks with higher safety margins. We’ve been investing in stocks keeping in mind high valuations,” said SBI Mutual Fund CIO Navneet Munot. According to Mr Munot, the market will continue to be volatile near term.
Market watchers said, apart from switching investments into low-beta sectors, mutual funds are also increasing their exposure to equity derivatives. In times of volatility, fund managers find it beneficial to allocate some part of the portfolio in extremely liquid instruments like equity derivatives where fund management strategies such as raising cash or deploying cash can be easily managed without significant impact cost.
Although, derivatives trading in India has been in existence for more than eight years, their use by mutual funds is of relatively recent origin. Previously, mutual funds could use derivatives only for hedging purposes; also, they could deploy no more than 50% of their assets towards hedging. But with changes in Sebi guidelines, mutual funds are allowed to increase net assets exposure up to 80% in the futures and options segment.
According to dealers, a few fund managers have begun trading in options market by buying ‘put options’, anticipating a further fall in share prices.
A back of the envelope calculation on the basis of stock portfolio weightage (as per July AUMs) of mutual funds reveals that key players such as ICICI Pru MF, Reliance MF, DSP Blackrock, UTI MF, Birla Sunlife MF, SBI MF, HDFC MF and Sundaram MF would have shed their equity asset base by around 3.3-4.5% on Monday. According to sources, the mutual fund industry is currently holding Rs 20,000 crore of cash in their portfolios, with most fund houses maintaining 8-9% cash levels. Domestic institutional investors have bought shares worth close to Rs 3,000 crore since the beginning of this month.
“Institutional investors have begun cashing out of high beta stocks and moving into market defensives. Most fund managers have been increasing investment exposure to large-cap IT stocks, energy and pharma stocks over the past few days,” said Gopal Agarwal, equities head, Mirae Asset Global Investment.
As per the first quarter shareholding pattern of India Inc, domestic mutual funds were overweight in consumer staples, industrial utilities and telecom companies in their portfolios. Underweight positions in technology, financials and materials funded their market purchases in high-beta sectors. Towards end-July and the beginning of August, mutual funds tilted their portfolio to add financial services’ companies and defensives such as consumer goods and IT in their portfolios.
“The focus now is on stocks with higher safety margins. We’ve been investing in stocks keeping in mind high valuations,” said SBI Mutual Fund CIO Navneet Munot. According to Mr Munot, the market will continue to be volatile near term.
Market watchers said, apart from switching investments into low-beta sectors, mutual funds are also increasing their exposure to equity derivatives. In times of volatility, fund managers find it beneficial to allocate some part of the portfolio in extremely liquid instruments like equity derivatives where fund management strategies such as raising cash or deploying cash can be easily managed without significant impact cost.
Although, derivatives trading in India has been in existence for more than eight years, their use by mutual funds is of relatively recent origin. Previously, mutual funds could use derivatives only for hedging purposes; also, they could deploy no more than 50% of their assets towards hedging. But with changes in Sebi guidelines, mutual funds are allowed to increase net assets exposure up to 80% in the futures and options segment.
According to dealers, a few fund managers have begun trading in options market by buying ‘put options’, anticipating a further fall in share prices.
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