Mutual funds have reverted to a strong buying spree in the stock market, but returns for investors might be capped as this renewed vigour coincides with shares already having turned somewhat expensive, the analysts feel.
The Bombay Stock Exchange's benchmark index, Sensex on Friday breached the 12,700 milestone to reach a new peak and the market analysts are foreseeing 13,000 level as the next obvious target for the markets.
However, the domestic MFs are again late in joining the party by turning towards aggressive buying only at post-12,000 level; similar to the trend witnessed when Sensex had crossed 11,000 level and was approaching its previous peak of 12,671 in May.
With market sentiments improving, mutual funds started deploying their cash in September taking their cash levels down to Rs 8,249 crore (Rs 82.49 billion) at the end of the month, domestic brokerage house Sharekhan said.
The absolute cash level of all equity funds stood at Rs 10,002 crore (Rs 100.02 billion) at the end of August.
Fund managers made purchases worth over Rs 10,000 crore (Rs 100 billion) in September and remained net buyers of shares worth Rs 1,340 crore (Rs 13.40 billion) during the month.
The cash level had been continuously rising since the beginning of this year through the month of May when MFs started buying aggressively days before the market hit an all-time high, which was followed by a sharp meltdown on the bourses.
The downslide of about 30 per cent in May-June period had caused a sharp decline in the net asset values of nearly all the MF schemes, which also coincided with huge redemption pressure from investors.
Unlike impressive positive monthly and weekly returns being registered by MFs until May this year, the short-term returns had turned negative during May and June, while the long term returns had also taken a beating.
The industry had experts attributed this sharp erosion in returns largely on the entry of MFs into the market at expensive levels, a trend which they fear is being repeated again on the bourses.
The equity funds are expected to further expand their holding in the stock market, given a rise in their total assets under management and robust inflow registered by them last month.
The equity MFs witnessed an increase of 6.2 per cent in their AUMs (assets under management) to Rs 1,21,332 crore (Rs 1,213.32 billion) in September, notwithstanding a fall of 5 per cent in the collective AUMs of all the mutual funds.
Meanwhile, equity funds registered a net inflow of Rs 780 crore (Rs 7.80 billion). Though redemption volumes were higher compared to the previous month, the inflows into new and existing schemes were strong enough to counter the high redemption volumes, Sharekhan said.
Redemption volumes soared to Rs 5,714 crore (Rs 57.14 billion) last month, but new and existing funds witnessed inflows of Rs 330 crore (Rs 3.30 billion) and Rs 6,164 crore (Rs 61.64 billion), respectively, while compensating for the high redemption pressure.
However, the analysts argue that MFs were never meant to be short-term investment instruments and the huge one-year return, which happened to be more than 100 per cent in certain cases, could not sustain beyond a short span of time.
Timing the market is never a key criterion for mutual funds and the fundamentals of stocks and markets are given much more importance, said a leading fund manager.
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