Fund houses caught in the market fall are selling stocks, either due to redemption pressures or to increase their cash levels.
While the Sensex fell by as much as 19 per cent from the recent peak, a host of fund houses were fully invested. A majority of the fund houses were sitting on cash amounting to 1 to 4 per cent of their portfolios against an average of 5 to 7 per cent, data from Value Research, a fund tracking company suggested.
Mutual fund houses have net sold Rs 533 crore (Rs 5.33 billion) in the first 13 days of this month compared with a net purchase of Rs 7,702 crore (Rs 77.02 billion) in January.
Mutual funds maintain cash to fund redemptions, if any, or to deploy it in the market. But most equity schemes saw inflows in January and fund managers say that they are still seeing inflows albeit on a smaller scale.
The Sensex has tanked by nearly 4 per cent or 700 points since the beginning of February. Funds have been selling shares to raise their cash levels in anticipation that markets may fall further and stocks would be available at mouth watering valuations.
Consider this: In the month of February, domestic institutional investors (mutual funds, insurance companies and banks) have bought equities worth Rs 1591.15 crore (Rs 15.91 billion) vis-a-vis the foreign institutional investors who have sold as much as Rs 3,561 crore (Rs 35.61 billion), indicated data from the Bombay Stock Exchange website.
Insurance companies have been big buyers in the stock market, according to sources in the broking industry. But mutual funds have been selling.
Some funds such as HSBC Equity, JM Financial Services, Taurus Discovery Stock, Reliance Growth and Reliance Equity maintained cash up to 17 per cent of their portfolio.
"Selling stocks at this time could be a tactical move to raise the cash level. Our fund is still seeing small inflows from investors and as such there are no redemption pressures," said S Krishnakumar, fund manager and head research at Sundaram BNP Paribas mutual fund.
Fund managers maintain that this is a classic time to re-jig the portfolio since stocks in several sectors have seen massive falls.
For instance, anyone who invested in the BSE capital goods index would have got whopping returns of nearly 115 per cent in one year, beginning January 1, 2007 to January 1, 2008. However, since the beginning of this year, the stocks have corrected by as much as 25 per cent.
"At a time when the market is seeing such a large movement, it is a classic turning point to re-structure the portfolio. Stocks are available cheaper than what they were available for earlier," said the chief investment officer of a mutual fund, who did not wish to be quoted.
In keeping with this theme, several fund houses filed offer documents for sector rotation funds with the Securities and Exchange Board of India so that they could invest in sectors that looked attractive at any point in time.
