As the fortunes of the markets took a turn for the better in the beginning of 2012, managers of the country's largest mutual funds jumped into the fray, pumping in money and reducing their cash holdings.
In January, when the market moved up by double digits, majority of the top ten schemes held less than five per cent of their total assets in cash or cash equivalent. Some even reduced their cash position to below one per cent, despite rising redemptions from equity schemes.
These include HDFC Top 200, HDFC Equity, Reliance Growth, Franklin India Bluechip, UTI Dividend, ICICI Prudential Focused Bluechip and DSP BlackRock Top 100 Equity Regular. All put together, these schemes hold around 30 per cent of the industry's overall equity assets of around Rs 1.8 lakh crore.
Prashant Jain, chief investment officer at the country's largest fund house HDFC Mutual Fund, says, "We chose to invest in this market. Though there are redemptions but it is merely around 1.5 per cent of the industry's overall equity assets." The fund house's two largest equity schemes, which are the industry's largest, too, were over 99 per cent invested as on January 31.
According to Sandesh Kirkire, chief executive officer of Kotak Mutual Fund, "There is an overall change in sentiments. Globally too, investors' sentiments are positive and confidence has returned. As markets have rallied, fund managers have deployed the accumulated cash in the markets."
This holds true.
In November last year the largest of the equity schemes were sitting on a cash of around eight per cent. And in December, the falling markets bottomed out only to see a sharp rise in the following months.
"This is a strong rally and I do not think there would be a major trend reversal. Fundamentally, the scenario is changing," adds Sadanand Shetty, senior equity fund manager at Taurus Mutual Fund. "There was an initial apprehension when markets rallied five per cent. But when it gained consistently further we did not want to miss the rally and pumped in money," he explains.
According to industry equity heads during such times funds need to perform and maintain ranking. "And it cannot happen if cash holdings remain high," says an equity head. Over the last three months, several categories of equity funds, which include diversified and thematic funds too, have given returns in the range of six to 15 per cent.
For instance, bank equity funds have returned as high as 22 per cent while mid- and small-cap funds gave a return of 13-15 per cent against 13 per cent rise in benchmark indices.
However, so far this year, the fund industry has remained a net seller in the markets with shares worth Rs 4,200 crore being sold. Selling has intensified in February with sales worth f Rs 2,300 crore.
Industry officials say they are eyeing three major upcoming events - the outcome of the UP elections, RBI Policy and the Budget. These factors will play an important role in deciding the direction of the markets in the coming months, they say.