The last time mutual funds were such aggressive sellers of equity was in January 2002, when they dumped a net Rs 442 crore (Rs 4.42 billion) worth of stocks.

In the 22 trading days in July, mutual funds were net sellers on 15 days. During this period, they sold equity worth a net Rs 727 crore (Rs 7.27 billion). In the remaining seven days, they were net buyers of equity worth Rs 295 crore (Rs 2.95 billion).

In all, funds bought shares worth Rs 2,622.23 crore (Rs 26.22 billion) in July and sold shares worth Rs 3,054.04 crore (Rs 30.54 billion), thus making net sales of Rs 431.81 crore (Rs 4.31 billion). A snapshot of mutual fund activity in July shows that fund houses began selling ahead of the Budget: indeed, they were net sellers for five consecutive days before the Budget.

Perhaps their concerns were not misplaced, as the BSE Sensex fell 112 points on July 8. Although the Sensex has gained 357 points thereafter, mutual funds seem to have used every opportunity to book profits.

The aggressive profit booking in July can be seen as an effort to cushion losses in the three earlier months. In the last three months (May-July), equity index funds posted losses of 8.68 per cent.

Among sectoral funds, petro funds reported a 12.3 per cent loss in value, pharma funds lost 6.8 per cent and even hybrid funds posted losses of over 6 per cent. So some amount of booking profits when the markets perked up seems to have been inevitable.

A quick survey of portfolio holdings in earlier months (portfolio figures for July are not available) suggests that mutual funds may have exited from cement, telecommunication, petrochemical, automobile and textile stocks. These are industries whose stocks mutual funds had bought aggressively in the April-June 2004 quarter.

In 2003-2004, mutual funds were net buyers of equity worth Rs 258 crore (Rs 2.58 billion). But they were net sellers to the tune of Rs 144 crore (Rs 1.44 billion) in April, before turning into voracious buyers in May when they picked up Rs 1,096 crore (Rs 10.96 billion) worth of stocks.

June saw them on a selling spree again, with net sales of Rs 261 crore (Rs 2.61 billion). In July, they reported net sales of Rs 432 crore (Rs 4.32 billion).