Funds await triggers to invest: Survey

Cash is King. And, fund managers the world over believe in this.

According to Merrill Lynch’s global fund managers’ survey, growing risk aversion has made a record 49 per cent of respondents overweight on cash. This means, a record number of fund managers want to be on cash, waiting for market uncertainties to settle down before they jump into the ring.

“Fund managers are waiting for triggers that will give them the confidence to buy… What they are looking for is a loosening of monetary conditions and the third quarter earnings to have a clear idea on where problems and opportunities lie across equity markets,” said Gary Baker, head of Equity Strategy at Merrill Lynch.

Since valuations have turned attractive and fund managers are waiting for triggers, “their confidence can be regained by bringing in stability to currency markets. A stronger currency can also resolve many domestic economic issues such as high cost of imports and growing currency risk in foreign portfolio investments,” said Dharmesh Mehta, Head of Broking, Enam Securities.

In last 10 months, India’s benchmark index Sensex has lost more than 50 per cent, but foreign institutional investors (FIIs) and hedge funds have lost nearly 20 per cent more by way of depreciation in the value of rupee. When equity and currency both fall simultaneously, their losses aggravate as, in dollar terms, their returns look even lower. These dual losses are giving rise to redemption pressures on hedge funds. Hence, they want to be on cash.

Another trigger could be a reduction in interest rates. “A 1.5-2 per cent cut in interest rates is the need of the hour. For companies, liquidity does help, but the cost of money matters the most,” said Nirmal Jain, Chairman, Indiainfoline.

Indian companies are in an expansion mode and need huge liquidity. The Reserve Bank of India (RBI) and the Central government are releasing liquidity into the system, but the cost of money is still high.

Reduction in interest rates will help companies raise debt as well as control cost of their working capital. Because of the global liquidity crunch, almost all funding taps for them have dried up. Demand for funds is there, but hardly anyone wants to lend.

Currently, there is also scope for promoters to consolidate their equity holding in their companies as share prices have almost halved.

Rosy Blue Securities’ Director Sushil Choksey said, “Simplified procedure for buyback of shares and liberal norms for creeping acquisitions by promoters should help them consolidate their holdings.”

“Many international fund houses have raised India-specific funds, and the amount raised in the last one year has not been fully invested. Current valuations (from investors’ perspective) are attractive enough for such funds to invest in India provided promoters are ready to dilute their stakes,” said Harish HV, Partner, Transaction Advisory Services of Grant Thornton.