India's equity fund managers, flushed with domestic liquidity, have invested a little over a tenth of their total investment in new entities which got listed so far in 2017. It needs to be noted that over the last three years, fund managers have shown quite an active participation in the primary market. The institutional segment of several issuances was solely consumed by mutual funds.
Initial Public Offerings (IPOs) have increasingly been looked after by fund managers who are finding it difficult to pump rising inflows in their existing holdings owing to the higher valuations. IPOs have somewhat proved to be a reliever to fund managers when it comes to investing rising inflows. Put together, of the total net investments of Rs 89,000 crore till September, fund managers moved a little over Rs 11,300 crore in new listings.
New entities like Avenue Supermarts, ICICI Lombard General Insurance, SBI Life Insurance, AU Small Finance Bank and Eris Lifesciences are among the most invested new counters on the exchange by fund managers. Put together, these five companies have cornered about 70 per cent or Rs 7,710 crore of the total investments in new listings. Till September, fund managers had brought in 22 new entities in their portfolio in the current year.
Mahesh Patil, co-chief investment officer (CIO) of Aditya Birla Sun Life Mutual Fund, says, "There have been some of the new entrants in sectors which were not well represented in the stock markets. Amid this, several businesses are emerging businesses which make a good investment opportunities. This not only helps us deploy the strong inflows but also helps in expanding the investment universe."
Given the current market valuations, fund managers have been maintaining a cautious approach when it comes to investing in stocks. However, given their inability to sit on cash pile up for long, they are forced to look beyond their existing stock profile in an aggressive manner over the last few quarters.
Interestingly, IPO market has not been able to take away a lion's share or relatively higher share of fund managers' investment in stock markets. This suggests that fund managers are not very comfortable in going for an all-out buy of shares of new companies.
According to Patil, earlier there were a lot more left on the plate for investors after listings. However, in recent past several of the new issues are being aggressively priced leaving very little room for high appreciation in the short term.
Industry executives say that IPO market is nowhere near the boom during the 2006-2008 rally. They say that if markets remain buoyant, there are more chances that primary market may heat up going forward, which will open more opportunities for investments.
Reliance Nippon Mutual Fund, the first fund house from the asset management sector is soon to hit the market. This will be yet another listing - first of its kind from the mutual fund business. Sector executives indicate the issue may also get a good response from fund managers.
Currently, the overall equity assets of India's mutual fund industry is around Rs 7.2 lakh crore. The total net inflows in equity schemes (including ELSS) thus far in 2017 is nearly Rs 80,000 crore.