While foreign institutional investors were buying Indian shares hand over fist — like they never have in the past 18 months — local mutual funds were consumed by a debt wish.
While foreign institutional investors were buying Indian shares hand over fist —- like they never have in the past 18 months —— local mutual funds were consumed by a debt wish.
A DNA analysis of fund behaviour in April 2009 shows that local fundmen’s continued caution may have robbed the small investor of a chance to ride the best monthly stock rally in 10 years.
The Sensex rose 17.4% or 1,694 points in April, and investor wealth by Rs 5,00,903 crore or Rs 1.42 crore per trading second.
The market capitalisation of Bombay Stock Exchange rose from Rs 30,86,000 crore to Rs 35,87,000 crore during the “cruellest” month.
Estimates by Icra, the credit rating agency, say diversified equity schemes whose primary mandate is to invest in equities were holding on to cash positions of up to 15%, a majority of the purchases in April was debt paper —- worth Rs 26,450 crore. But this could be liquid funds money being rolled over from March. There was an outflow of Rs 37,000 crore from liquid schemes in the month, according to the Association of Mutual Funds of India data.
Nevertheless, it is the highest monthly investments into debt ever by mutual funds. It tops the Rs 18,421 crore worth debt purchased by funds in January this year.
Gross purchases of debt by funds stood at Rs 45,991.90 crore in April —- they sold Rs 19,541.70 crore worth of paper, giving a net buy of Rs 26,450 crore.
In sharp contrast, net inflows from mutual funds into equity was a paltry Rs 38.6 crore, according to Securities and Exchange Board of India data.
While funds bought stocks worth Rs 12,137.80 crore, they sold almost an equal amount —- Rs 120,98.90 crore.
Globally, risk aversion has reduced significantly, and emerging markets including India have been receiving copious flows from FIIs.
FIIs have invested Rs 6,500 crore in the equity markets and Rs 2,490 crore into debt in April. In all, they plonked in more than Rs 10,000 crore in the last two months.
Though Indian funds seemed to have joined the party initially, they decided to pull out as the momentum was too fast for their comfort. In March, mutual funds had turned net buyers, reeling in equities worth
Rs 1,477 crore, which was then a six-month record.
That’s after being net sellers in January and February, a time when FIIs also sold big-time.
Cash levels in diversified mutual funds are above 15%, according to Icra data.
The upshot: 90% of diversified equity schemes have trailed the market performance in April, according to a report by Reuters, with returns to investor severely affected.
“Equity fund managers were unwilling to commit their money due to political uncertainty around the polls. But now there would be a lot of pressure to put money into the market,” said a fund manager, requesting anonymity.
Interestingly, mutual funds seem to be dipping toes when the rally is looking “overbought” according to some marketmen.
On Monday, FIIs bought shares worth Rs 1491.10 crore, while mutual funds bought equities worth Rs 378.80 crore. That was a big buy after a long hiatus.
However, they seem to have reverted to mean, as it where, on Tuesday. Provisional data for the day show domestic institutions sold equities worth Rs 129.85 crore, while FIIs bought shares worth Rs 508.51 crore.
“FIIs who have put in money are ones who have received fresh inflows whereas that is not the case for mutual funds. Fixed-income is receiving a greater portion of the liquidity as compared to equity offerings,” said Rajan Krishnan, CEO of Baroda Pioneer AMC, which saw a 66% increase in its assets under management, driven largely by fresh inflows to its liquid fund.
“There is a large amount of liquidity in the hands of the corporates and other institutions which traditionally invest into the fixed income side of the market. On the other hand, retail investors and high net-worth individuals who drive the equity inflows are adopting a wait and watch approach. Hence the flows to debt,” said Sanjay Sinha, CEO of DBS Cholamandalam Asset Management.
The mutual fund AUM for April has gone up by Rs 58,000 crore. Reliance was the top gainer adding Rs 7,400 crore to its kitty, while HDFC and UTI saw their AUM rise by Rs 5,900 crore and Rs 5,700 crore, respectively.
The overall gain in AUM is 11.76%. The combined AUM stands at Rs 5,55,000 crore.
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