Mutual funds have stepped up their equity investments over the past one month, and have been net buyers of shares, after being net sellers for the past nine consecutive months.
While a section of the fund industry is still sceptical about the future course of market, the rise in equity allocation is being attributed to a mix of value buying, short-term trading bets and deployment of new fund offer (NFO) money.
Domestic mutual funds net-bought shares worth Rs 98 crore in May. In June, the figures have risen to Rs 523 crore. Before this, mutual funds had been net buyers of equities on a monthly basis was in August 2009, when they bought Rs 570 crore of equities. Mutual funds were heavy sellers, in October ’09 and March ’10, worth Rs 5,194 crore and Rs 4,082 crore, respectively. However, absolute cash proportion rose in May to Rs 10,200 crore from Rs 9,500 crore. This could be because of several NFOs launched during the period, industry experts said.
“There is a sense of optimism that the infrastructure story will induce momentum in stocks along with an offtake in credit disbursals and industrial growth. Apart from a small rise in operating margins, which could lift the bottomlines of companies, this is a good time for investment,” said Satish Ramanathan, head of equity, Sundaram BNP Paribas Asset Management.
According to institutional brokers, fund buying has shifted from mid-cap stocks to large-caps over the past one month. Fund managers are nibbling at mid-caps, post-correction in May. Mid-cap stocks, which are highly volatile, are currently commanding an average price-to-earnings multiple of 21 times.
Going by industry sources, fund managers are increasing exposures to power, FMCG, mid-segment and commercial automobile manufacturers, pharma and two-wheeler companies.
Mutual funds are pulling out money from cement (because of waning demand for cement during rainy season), telecom, steel and banks, which are currently trading at expensive levels.
According to fund managers, the European credit crisis, which resulted in the markets correcting by a good measure, helped funds buy quality stocks at low price-levels. Bearish trends in the market over the past two months had prompted funds to remain in cash all the while. The opportunity to “bottom-fish” stocks came in mid-May, when the broader market was trading at 16,400 levels (on the Sensex). The market has gained 10% since then.
“The near 1000-point momentum over the past one month gave us some chance to churn our portfolios. We got in some of the sure-fire high-beta groups and scalped some profits. Currently, we’ve moved out of these stocks and have taken refuge, partly in slow-moving stocks and large-caps,” said the fund manager of a corporate-promoted fund house.
Another reason for the rise in mutual fund investments in the market could be the line-up of NFOs that mobilised money over the past two months. Mutual funds are in a race to launch new schemes before July 1, after which new offerings (NFOs) will be required to complete the issue within 15 days of opening for subscription.
Top fund houses like Reliance MF, HDFC Mutual, Birla Sunlife MF, UTI Asset Management, SBI Mutual, Tata MF and Axis Mutual Fund, among others had approached investors in May (and even in June) with their NFOs. As on May 31, total average AUM of equity MFs stood at Rs 2,07,162 crore, logging a 4% rise from April. While there is optimism all around, a section of the market is still cautious.
“Data from Europe and US are still bad. China is witnessing a slowdown in real estate and Japan is nursing its huge fiscal deficit. It is difficult to believe, equity funds will do well over the next few months,” said Anand Shah, head-equities, Canara Robeco Mutual Fund.
“All said, the Indian market could witness some short-term blips on account of excess liquidity (in the system) and decent corporate earnings. We are adopting a defensive strategy and are reducing our exposure to high-beta stocks,” Mr Shah added.
Source: http://economictimes.indiatimes.com/Personal-Finance/Mutual-Funds/MF-News/Correction-prompts-MFs-to-raise-equity-exposure/articleshow/6076842.cms?curpg=2
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