Equity mutual fund managers hoard cash

Volatility in the Indian equity markets has pushed fund managers to sit on cash and enter the market once valuations start looking attractive. Average cash levels of equity schemes in the Indian mutual fund industry have increased to 6.33% of the total portfolio in February (highest in the last six months) with few equity schemes keeping cash levels in the range of 10-20%. These cash levels have inched up even more, according to industry sources.

According to the Value Research data, in the month of January this year, the average cash levels were 5.73% while in December last year it stood at 4.47%. Market participants say that since the start of the current calendar year, fund managers have hiked their cash position as they feel that markets have not yet bottomed out and might fall further from the current levels. In the month of January and February, Sensex index was down by 10.64% and 2.75% respectively.

Anoop Bhaskar, head equity at UTI MF says, “We have raised cash levels since January, as we have taken a view that we don\'t want to make any further purchases at this point of time. We have booked profit in the markets and are now sitting on cash.” He also added that, some funds like UTI Dividend Yield, UTI Opportunities are getting regular inflows, and those have not been invested resulting in higher cash levels. Interestingly, in the last three months, equity inflows for the mutual fund industry has been positive, after sustained redemption pressure from its investors.

Some of the mid-cap and small schemes like Reliance Small Cap (42.94%), L&T Mid-cap (18.4%) and Sundaram Select Mid-cap (16.76%) have increased their cash holding in February. In the month of February UTI Opportunities fund is holding cash of over 9.59% which used to 3.29% in December last year and 2.2% in September 2010.

TP Rama, MD of Sundaram MF says, “In February few of our schemes had hiked their cash levels, but in the current month we have entered the market and brought down cash levels to 5-7% levels. We invest in those stocks which don\'t have high PE ratio, so in March few stocks were trading at reasonable levels and we have bought those stocks.”

A senior fund manager from the leading fund house on condition of anonymity said, “With uncertainty in the global markets we feel that in the coming months too cash levels might stay at the same levels. Once the valuation starts looks attractive, we will be fully invested in the market.”

Source: http://www.indianexpress.com/story-print/764325/