Fund managers turn net-buyers

Change of trend after eight months signals return of retail investors as market rallies 8% in May

After aggressively dumping equities, the country’s equity fund managers are finally warming up to taking greater exposure to stocks, following the game-changing election outcome last month.

Fund managers turned net-buyers of Indian shares for the first time since September 2013 even as stock market indices climbed to their lifetime highs.

After selling shares worth more than Rs 18,000 crore between September 2013 and April 2014, mutual fund houses were seen pumping in over Rs 1,500 crore in the last seven trading sessions of May. The net inflows, however, stood at just Rs 105 crore last month as MFs were net-sellers in the first half of the month.

Positive inflows by MFs suggest that retail investors are now taking greater equity exposure bouyed by the positive sentiment created by the decisive victory of the Narendra Modi-led Bharatiya Janata Party in the Lok Sabha elections.

Interestingly, fund managers were seen aggressively buying on days when the markets traded weak, suggesting that they are adopting a ‘buy on dips’ strategy as the market has run up quite sharply.

“Equity is not an asset class which we should be avoiding any more,” said Nandkumar Surti, chief executive officer, JPMorgan AMC. He said that ahead of the elections, fund managers had taken some money off the table to avoid risk.

“Now that there is a clear mandate, fund managers are investing. Going forward, schemes will show less of cash holdings and more of invested cash," Surti said.

Even though the market had a secular run in May, gaining eight per cent, it did provide bouts of buying opportunities. For instance, mid-cap and small-cap shares had a sudden crash of over 10 per cent in the last week of May on profit-booking.

These dips were well used by fund managers to buy stocks, trading data suggest. Navneet Munot, chief investment officer, SBI MF, said, “Given the strength of the mandate and its resultant effects on the market we had to tactically accelerate our accretion in cyclicals. We have also concurrently broadened our investible universe to tap opportunities emerging in the mid-cap space.”

Added S Naren, chief investment officer, ICICI Prudential AMC, “Considering potential reforms by the new government and the fact that the economic indicators are seeing a positive trend, we believe sectors such as banking, infrastructure, industrials, public sector undertaking and the mid- and small-cap space could provide the best opportunities.”

Industry officials say the sentiment has improved. However, they are yet to see significant inflows from retail investors.

“We expect that going forward, the flows will increase from retail as a lot of money has been sitting on the sidelines for over six years now. There is a remarkable improvement in gross inflows, which is only to rise,” said the national sales head of a foreign fund house.

“My only request to investors is they should not be redeeming now looking at indices. They should continue with their systematic investments,” said Milind Barve, CEO, HDFC Mutual Fund.

Fund managers believe that despite the sharp run, equity investment can still deliver robust returns over a period of five  years.