Equity fund managers press sell button yet again in January

Redemption pressure sees MFs sell equities worth Rs 4,000 crore during the month

The beginning of 2013 may not be a happy start for the Indian mutual fund industry. If heavy net selling by equity fund managers this month is anything to go by, January is likely to see one of the highest equity redemptions.

According to data available from the capital markets regulator, Securities and Exchange Board of India, during a period when the benchmark stock indices hit two-year highs, equity fund managers sold shares worth Rs 3,880 crore till January 28. This amount of net selling is the highest so far in FY13 in a month.

It’s a clear signal that with indices inching up, redemptions, too, have intensified, forcing fund managers to sell their holdings. While the industry has already lost close to 3.7 million equity folios during April-December, executives are not ruling out further closures.

“Investors who had entered three-four years back when markets were at absolute peak and remained stuck seem to have been quick to book whatever gains they made after seeing high levels of indices,” says Karan Datta, national sales head at Axis Mutual Fund. According to him, folio closures and cancellation of systematic investment plans are likely to be seen.

In December alone, net selling of equities stood at Rs 2,700 crore. This resulted in the closure of a massive 600,000 equity folios, never seen in the industry’s history. If January follows suit, equity folios closures can surpass the previous month’s figures.

Agrees Akshay Gupta, chief executive officer of Peerless Mutual Fund. “This year, as Indian stock markets moved higher, the industry has been witnessing profit bookings at every single high in the markets. These outgoing investors have been there anywhere between two-five years. It is not churning by distributors, but customers’ demand to book profits and exit.”

With fund managers pressing the sell button hard in a rising markets to meet redemption requests, the overall net selling so far in FY13 is a whopping Rs 19,000 crore. And, what is significant amid this is the fact that shares worth Rs 14,700 crore were sold after August.

NO END TO SELLING Net selling by MFs
Month	Equities sold (Rs crore)
Apr	-539.0
May	-397.8
Jun	295.5
Jul	-1,988.00
Aug	-1,631.00
Sep	-3,198.70
Oct	-2,519.80
Nov	-2,397.80
Dec	-2,698.90
Jan*	-3,880.90
* Till 28 January Source : Securities and Exchange Board of India

It is to be noted that after the government’s announcements of reform measures, positive sentiments prevailed in the stock markets, mainly in the third quarter of FY13. The quarter witnessed net selling of shares worth Rs 7,600 crore.

The only positive development for the industry is the latest signs showing rising gross sales of equity schemes, which in December crossed Rs 4,000 crore, hitting a nine-month high. “Gross sales are encouraging. Since redemptions are higher, net sales continue to remain in the negative zone. However, the good thing is that at a time when investors are going out, fresh money is also being pumped in which is rising and the trend will continue,” explains Axis Mutual Fund’s Datta. As on December 31, assets under management (AUM) in the equity category stood at Rs 1.91 lakh crore. Of the industry’s total AUM of Rs 7.6 lakh crore, equity-related schemes constituted over 25 per cent.