MFs seen sitting on large amount of cash

[admin]

EXPERIENCE is also about knowing when to lie low” proclaims the billboard of a mutual fund house at a bus-stop opposite the Metro multiplex. And many rival firms too may be forced to take that approach seriously in the coming days. With market sentiment nosediving in the past few months, fund managers at mutual fund houses and insurance companies are bracing for a slowdown in fresh money flows into equity schemes. They say with no appetite among retail investors for new fund offerings and not many people keen to buy into unit-linked insurance plans, incremental money entering the markets is gradually drying up. However, many mutual funds are sitting on large amounts of cash, anticipating either a sudden wave of redemption if the situation worsens, and if not, then for attractive opportunities.
Foreign institutional investors, who had been the driving force of the bull run till January this year, have sold stocks close to $5 billion in 2008 so far. Flush with sustained inflows from retail investors, local mutual funds have net bought around $ 1.5 billion during the same period (Rs 700 crore in June itself), as per information on Sebi website. Analysts say the numbers this time around may not be so rosy.
“It’s unlikely that we will see any fresh money entering the markets from the MFs side,” says Paras Adenwala, chief investment officer at ING Mutual. “The only activity we are likely to see is that fund managers rejigging their portfolios depending on the state of the market,” he adds.
Irda, the insurance regulator, does not give out details of how much funds from insurance companies have entered the markets. But back of the envelope calculations put the number that Ulips invested at around Rs 50,000 crore in stocks in 2007-08. Fund managers at other fund houses say although there have not been any fresh redemptions from the investor side, getting fresh money in schemes has not been easy either.
Mr Adenwala says his fund house has fully deployed all its funds in the market, since compliance rules do not allow him to sit on any cash. But he agrees that many other Indian promoter-backed entities are sitting on large amounts of cash that may find its way in the market soon.
When fund managers think there is a possibility of further dip in stock prices, they pull out their investments for the time being. This not only prevents further damage to NAVs, but also enables them to enter the market, as and when they are more comfortable with valuations.

[Jasonstawnos]

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